When you assume the role of a power of attorney (POA) for someone, you become responsible for crucial decisions on their behalf. These decisions can range from managing medical choices to handling personal or business finances, and even finalizing real estate transactions.
To navigate the process of signing the contract effectively, it's essential to grasp the necessary information regarding signing requirements and e-signing procedures. This article will provide you with those relevant insights.
Understanding the Terminology: Classification of Power of Attorney Agreements
In its most basic form, a power of attorney agreement grants an individual the ability to designate a representative who can legally act on their behalf.
The individual creating the power of attorney is known as the "principal," as they are granting authorization to someone to be their legal representative. The representative, also referred to as the "agent" or "attorney-in-fact," assumes the role of the power of attorney holder. It is crucial to remember this terminology when signing a legal document, as you will associate it with your signature.
Types of Power of Attorney (POA)
Given below are several types of POA that serve different purposes and grant varying levels of authority:
General Power of Attorney: This grants broad powers to the agent or attorney-in-fact, allowing them to handle various financial and legal matters on behalf of the principal. However, the authority granted under a general power of attorney ceases if the principal becomes incapacitated(incapable of making decisions for themselves).
Limited or Special Power of Attorney: This type of POA grants the agent specific and limited powers to carry out particular tasks or make decisions on behalf of the principal. It is often used for specific transactions or during the principal's absence.
Durable Power of Attorney: A durable power of attorney remains in effect even if the principal becomes incapacitated or mentally incompetent. It allows the agent to continue acting on behalf of the principal in such situations.
Medical Power of Attorney or Health Care Power of Attorney: This position grants the agent the authority to make medical decisions on behalf of the principal if they become unable to do so. It is specifically focused on healthcare and medical treatment choices.
Financial Power of Attorney: A financial power of attorney authorizes the agent to manage the principal's financial matters, including banking, investments, taxes, and other financial transactions.
Springing Power of Attorney: This type of POA only becomes effective upon the occurrence of a specific event or condition, typically the incapacitation of the principal. Until that event occurs, the agent does not have the authority to act.
Qualifications Required to Sign as a Power of Attorney (POA)
The qualifications required to sign as a power of attorney can vary depending on the jurisdiction and the specific circumstances. Here are some general considerations:
Legal Capacity: The person signing as a power of attorney should have the legal capacity to do so. This typically means being of sound mind and understanding the nature and consequences of granting someone else the authority to act on their behalf.
Authorization: Each person signing as a power of attorney should have a unique and distinct legal authority, which can only be granted either by being the principal themselves or by being officially appointed through a valid power of attorney document.
Age: The person signing as a power of attorney should generally be of legal age, typically 18 years or older. However, some jurisdictions (such as the UK and Australia) may allow for a minor to sign as a power of attorney under specific circumstances or with the consent of a parent or guardian.
Absence of Conflict of Interest: The person signing as a power of attorney should not have any conflicts of interest that may impair their ability to act in the best interests of the principal. They should be trustworthy and act in good faith.
Compliance with Legal Requirements: It is essential to comply with any specific legal requirements set by the jurisdiction where the power of attorney is being brought into use. This may include following specific procedures, using prescribed forms, or having the document properly witnessed or notarized.
Legal & Financial Considerations While Signing as a Power of Attorney (POA)
When signing as a power of attorney, consider these legal considerations:
Legality: Ensure the POA document is legally valid and complies with state laws.
Scope: Understand the extent of powers granted by the POA.
Duration: Know when the POA comes into effect and when it ends.
Revocation: Be aware the principal can revoke the POA at any time.
Fiduciary Duty: Understand your legal obligation to act in the principal's best interest.
Liability: Be aware of potential legal liability for mismanagement or abuse. For example, if the agent fails to pay taxes or debts on time, they could be held responsible.
Successor Agent: Know the process if a successor agent is named in the POA.
Legal Assistance: Consider seeking legal advice to understand your responsibilities.
When signing as a power of attorney, consider these Financial considerations:
Fiduciary Duty: Act in the principal's best interest.
Financial Skills: Manage the principal's finances effectively.
Principal's Wishes: Guide decisions based on the principal's financial goals.
Prevent Financial Abuse: Protect the principal's assets.
Liability: Be aware of potential liability for mismanagement.
Compensation: Understand potential compensation and its tax implications.
Legal Assistance Cost: Be prepared for potential costs of professional advice.
POA Termination: Know that the POA ends when the principal dies.
What to Include in Your Power of Attorney (POA)
Potential Risks When Signing as a Power of Attorney
Signing as a Power of Attorney (POA) comes with significant responsibility and potential risks:
Misuse of Power: The agent may misuse their power for personal gain. They may make financial decisions that benefit themselves rather than the principal. This is a form of financial abuse and is illegal.
Lack of Financial Acumen: The agent may not have the necessary knowledge or experience to handle the principal's financial affairs effectively. This can lead to poor decision-making and potential financial loss.
Potential for Family Conflict: If the agent is a family member, their actions may cause disagreements or conflicts within the family. Other family members may disagree with the decisions made by the agent, leading to strained relationships.
Liability: If the agent mismanages assets, they could potentially be held liable. For example, an agent invests the principal's funds in a risky venture without their knowledge. If the venture fails, causing financial loss, the agent could be held liable for asset mismanagement.
Time and Emotional Burden: Acting as an agent can be time-consuming and emotionally challenging, especially if the principal is a loved one who is ill or incapacitated.
Difficulty in Selling Property: If the agent needs to sell the principal's property, potential buyers may be wary of dealing with an agent rather than the owner directly. This can make the process more difficult.
Legal Challenges: If the POA document is not properly executed, it may be legally challenged. This could result in the agent being unable to act on the principal's behalf when needed.
Here Are 5 Steps to Signing a Power of Attorney (POA)
Step 1: Verify Your Status
Check if you are the person listed as the agent in the POA document and see if there are others named in the POA as agents alongside you.
Step 2: Prepare for Meetings
Bring your copy of the POA and a photo ID to any meetings where you'll need to sign as an agent.
Step 3: Sign Correctly
Sign the principal's full legal name, then write the word "by," and then sign your name. Indicate that you're signing as an agent by writing "Agent," "Attorney in Fact," "Power of Attorney," or "POA" after the signature.
Step 4: Understand the Implications
When you sign a document as a POA, your signature has the same legal effect as the principal's. Any agreements, decisions, or transactions are legally binding as if the principal had signed the document.
Step 5: Sign in the Correct Format
The principal's name should always appear first, as you're signing on their behalf. For example, "Sam Jones, by Catherine Spalding, agent."
How to Use E-signature as a Power of Attorney (POA)
Verify Identity: Before you can e-sign as a POA, you must verify the identity of the person you are representing. This is a crucial step to ensure the legality and validity of the document.
Use a Secure Platform: Use a secure platform that allows for electronic signatures. Some platforms, like SignHouse, provide tools to conduct secure transactions via an encrypted audio-visual session. This can be particularly useful if the person granting the POA is unable to meet in person due to health or other reasons.
Sign the Document: Once the document is prepared and the identity of the person is verified, you can sign the document electronically. SignHouse will guide you through this process.
Notarization: Many POAs need to be notarized to be legally binding. Some platforms, like DocuSign allow for remote online notarization (RON). This process includes identity verification, signing, and notarizing the document remotely.
Submit the Document: After the document is signed and notarized, it can be submitted electronically. For example, the IRS allows tax professionals to upload third-party authorization forms electronically through a secure submission platform.
Making Your Power of Attorney Signature Count
When signing as a power of attorney, it's important to ensure that your signature meets the specific requirements set by the bank or institution you are dealing with. Different transactions may have different formatting preferences, and a signature that doesn't conform to the acceptable format could potentially cause delays.
Typically, you will sign using your full name followed by the appropriate nomenclature, such as "attorney-in-fact."
Here are some common formatting styles you may encounter:
Jean Norman, as attorney-in-fact for Morgan Spencer
Morgan Spencer, represented by Jean Norman as their power of attorney
Jean Norman, acting as power of attorney on behalf of Morgan Spencer
Morgan Spencer, by Jean Norman, their authorized attorney-in-fact
Jean Norman, duly appointed attorney-in-fact for Morgan Spencer
It is crucial to explicitly indicate that you are signing as a power of attorney for each transaction. Failing to include your official role could lead to personal liability for the transaction. Conversely, signing as the principal instead of using your own name could result in penalties for fraud or forgery.
In most cases, both paper and electronic signatures are acceptable, but requirements can vary from state to state. If you are unsure, it is recommended to verify with the bank, or institution, and consult a lawyer to ensure compliance.
Here's a short guide on creating your electronic signature using SignHouse:
Assuming the role of a power of attorney (POA) is a significant responsibility, as it involves making crucial decisions on behalf of the principal. For those opting for e-signatures, verifying identity and using secure platforms are critical steps.
Remember, acting as a POA can be complex, and seeking legal advice or using reputable platforms like Sig House can help streamline the process, ensuring smooth and efficient handling of important paperwork. When you are ready, consider using SignHouse to streamline the signing process for any document type, ensuring smooth and efficient handling of important paperwork.
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About the author
Oran Yehiel (CPA, MBA) is the founder of Startup Geek, a content platform for startup founders and entrepreneurs. He writes about venture capital, marketing & sales, accounting & tax, software tools, entrepreneurship, HR and more.