Avoid giving unlimited rights while handing the Power of Attorney to manage your assets

While Bollywood may have exaggerated the dangers of handing over an unlimited Power of Attorney (PoA) in the movie Baazigar, the risks highlighted are real and relevant. We will evaluate these risks and understand how to mitigate them. But first the basics.

Understanding Power of Attorney

What is PoA?  It is a legal authority granted through a formal written instrument, whereby a person (principal or donor)  authorises another person (agent or done) to act on his/her behalf.

Why make a PoA?  Generally, PoAs are created by someone who cannot do the transaction by himself/herself due to various reasons such as illness, travel schedule, overseas residence and old age. These transactions could be related to dealing in property, banking, tax payments, legal and judicial proceedings, financial investments etc.

Types of PoAs

-A General PoA confers general powers to the agent across all matters without any restrictions.

-A Special PoA is restrictive in nature and grants power to the agent for dealing in certain specific matters such as bank operations, collecting rents and signing certain agreements.

Also read: Follow these 7 steps to transfer assets smoothly to heirs after your time

Precautions to be taken while making a PoA

While PoA is a convenient way of managing the affairs when someone is physically not available to complete a transaction, at times the risks associated with the conduct of the appointed attorney may outweigh the advantages. Hence it is very important to be careful while making your PoA. Here are some of the precautions one should take.

Appointing the right attorney: One of the most critical aspects of preparing a PoA is selecting the right attorney. Apart from being trustworthy, your attorney should be capable and willing to take on the responsibility. A close family member such as spouse or children are generally the preferred choice. But at times, for avoiding conflicts within the family and keeping in mind the complexity of the work, a trusted friend or a professional could also be considered for being appointed as an attorney.

Restrict attorney’s power: While making your PoA, avoid granting open-ended and sweeping powers to your attorney. As far as possible, consider making a Special PoA over a General PoA. It is highly advisable to define the purpose, limit the scope of work and restrict the rights of your attorney. For e.g., if you are an NRI and considering making a PoA for managing rentals for your property and operating your bank accounts, ensure that you restrict your attorney from buying/selling your property and opening or closing bank accounts.

Also read: How to bequeath your digital assets

Define validity: Generally, all PoAs remain valid unless specially revoked or till the life-time of the principal. However, it is possible to give a timeline after which the PoA will become invalid. For e.g., if you have made a PoA appointing your local manager as your attorney to sign the papers related to setting up of a manufacturing unit at a remote location, you can restrict the validity of the PoA till the estimated timeline within which the project will be completed or simply mention till completion of the said unit.

Take professional help: Your PoA is too important a document to be left to chance or to copy from someone else’s format.  For drafting or registering, a professional would be in a better position to assist you.

Conclusion

Since PoAs come with a ratification clause, the principal is liable for the acts of the appointed attorney. There are many cases where a PoA is granted with specific intent but ends up in a messy litigation between the principal and attorney holder. Choosing someone to represent and deal with your hard-earned money is a serious business. Hence, all due care must be taken while preparing such an important document.