The Power of Attorney

In this post, I discuss the power of attorney — what it is, the critical difference between general and limited POAs, the Arkansas execution requirements under the Uniform Power of Attorney Act, and the very real financial risks of giving anyone (other than perhaps a spouse) a general POA.

A power of attorney is an authorization for one person—the attorney in fact—to act on behalf of another person—the principal. Because the attorney in fact is acting as an agent, questions of agent liability to third parties can arise when the agent enters into contracts or other agreements on the principal’s behalf. A power of attorney may be general, meaning that the attorney in fact has broad powers to act on the principal’s behalf in a wide array of circumstances, or limited, meaning that the attorney in fact may only act on behalf of the principal in narrowly defined circumstances such as at a specific real estate closing.

As an aside, an attorney in fact is distinguishable from an attorney at law, which is what is commonly meant by the term “attorney.” Unlike an attorney at law, an attorney in fact does not have to be a lawyer.

Drafting a Power of Attorney

There is great flexibility in drafting the scope and parameters of a power of attorney. Both start and expiration dates may be incorporated into the document, and provisions for contingencies—such as the incapacity of the principal—may be included as well. As a general rule, an attorney in fact does not have the authority to give gifts on behalf of the principal unless specifically authorized to do so.

Under Arkansas’s Uniform Power of Attorney Act (adopted by Act 805 of 2011 and codified at Ark. Code § 28-68-105), a power of attorney must be signed by the principal—or signed in the principal’s conscious presence by another at the principal’s direction. A signature acknowledged before a notary is presumed genuine. Unlike a will, which requires two witnesses under Ark. Code § 28-25-103, no witnesses are statutorily required for a financial POA in Arkansas. Many practitioners still execute POAs before witnesses as a belt-and-suspenders measure—particularly for real-estate transactions and for recognition by out-of-state institutions that may apply different formalities. Where witnesses are used as a matter of best practice, the attorney in fact should not serve as a witness.

Risks

A power of attorney provides another person with extraordinary abilities to act on your behalf and so must only be provided after very careful consideration and then only to those whom you would trust with your life. A colleague of mine in the JAG Corps calls it the “most dangerous legal document known to man.” When you execute this document, you provide another person the ability to act in your place, meaning he or she can sell your property and even take out loans in your name.

Because of these great risks, I generally advise against providing a general power of attorney to anyone but a spouse, and sometimes not even then. Most purposes for which such a document is desired can be accomplished through alternative, less risky, means, such as joint bank accounts or very limited powers of attorney.

It is important to recognize that a joint holder of your bank account can bring you down to zero, but your attorney in fact can bring you into the negative. In fact, stories of servicemen returning home from overseas to find an empty bank account and mountains of new debt are not uncommon. You should carefully consider this before providing anyone with a power of attorney, so that you can understand the risks and enter into the situation with eyes wide open.

Disclaimer: This post is general legal information about powers of attorney, not legal advice. POA rules and execution formalities vary by state and the consequences of misuse can be severe; consult a qualified attorney about your specific situation before executing a POA.

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