Careful, NRIs: This is how to ensure your power of attorney is a tool, not a trap

NRIs can grant the power of attorney to the chosen individual while abroad and send the deed to India, but there are terms and conditions that they need to take care of.

Shyam Sundar*, a UK-based professional, faced a dilemma when his grandmother in India wished to gift him a property that she owned. Due to work-related commitments, Shyam was unable to travel to India at short notice to complete the formalities around the gift deed, which his grandmother wanted to execute at the earliest due to her ill-health.

Fortunately, Shyam had previously executed a power of attorney (PoA) in his mother's name, thus enabling her to complete the transaction. Additionally, Shyam's PoA allowed his mother to manage his monies, giving his family access to funds for their financial needs.

Like Shyam, US-based Raj Goswami*, too, had to take the PoA route to sell his property in Delhi without having to make a trip back home. He granted his father a ‘specific’ PoA. This enabled his father to handle all aspects of the deal — finding buyers, signing documents, and dealing with authorities. The sale is legally binding, as if Raj had done it himself.

The power of PoA

For non-resident Indians (NRIs), managing their assets and financial affairs back home requires careful planning and execution. A vital step in this process is picking a PoA  or mandate-holder, thus granting a trusted individual the authority to oversee  your financial affairs and act on your behalf in India.

“It is ideal for those living abroad. A PoA simplifies administrative work in India, and can cover various transactions such as property management, banking, taxes, real estate, legal matters, and investments,” says Sneha Makhija, Head of Wealth Planning, Products & Solutions, Sanctum Wealth.

If you find the idea of giving someone broad powers to execute transactions risky, you can appoint a ‘mandate-holder’ instead. Take, for example, the case of Ronak Shah* who had to manage his financial affairs remotely because of an extended absence from India. He needed to authorise periodic debits from his bank account for investment. Because of concerns about the broad authority conferred by a PoA, Shah opted to take the ‘mandate’ route instead. This alternative granted limited authority, allowing his mother to operate only a specific bank account.

There are significant differences between a PoA and a mandate. The former may need to be registered, grants broader authority, allows independent decision-making, and is used for complex transactions. A mandate's scope is narrower, is ideal for routine tasks, and doesn't require registration.

How to execute a mandate for the bank

Notify your bank in India about your intention to create a mandate, and choose a trustworthy individual (typically a family member) as the mandate-holder. Fill out the bank's mandate form, providing details such as account information, mandate-holder's identity, and the specific powers granted. Attach the required documents (passport, overseas address proof, mandate holder's ID, etc.). Sign and authenticate the form in person, or remotely through a notary public or the Indian embassy. Submit the completed form to your bank. Verify the bank-specific requirements, ensure the mandate-holder understands their responsibilities, and consider registering the mandate for added security.

Alternatively, some banks offer online, phone, or in-branch mandate creation. Review and update the mandate periodically to maintain control over your account.

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Types of PoA

General PoA: This arrangement confers general powers to the PoA holder — the ‘agent’ — across all matters (banking, financial, legal, real estate, etc.) without any restrictions.

Special PoA: This is restrictive in nature and empowers the holder to deal only in specific matters such as bank operations, selling a property, collecting rent, signing certain agreements, etc.

“However, for major property deals, owners (NRIs) must handle transactions personally, not through a PoA holder," cautions Shailendra Dubey, PlanMyEstate Advisors LLP.

Navigating PoA registration: key considerations for NRIs

In accordance with the Power of Attorney Act, 1882, registration is mandatory for a property-related PoA. “But, many financial institutions are not comfortable with an unregistered PoA. Registration brings in more credence to the document,” says Dubey. From that perspective, many financial institutions such as banks, mutual fund firms, and insurance companies now require registration for greater authenticity and legal validity.

NRIs can grant the PoA to the chosen individual while abroad and send the deed to India, but there are terms and conditions that they need to take care of. "The PoA-holder must register the deed within 90 days of receipt in India. On completion of the same, the PoA becomes valid,” explains Dubey.

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Risks

Although a PoA allows one to manage affairs remotely, the risks associated with the PoA-holder’s conduct may outweigh the benefits. Therefore, exercising caution when executing a PoA deed is crucial.

When you select a PoA holder, it is crucial to choose someone who can carry out your tasks. The ideal candidate should demonstrate trustworthiness, willingness to work, and relevant expertise.

For instance, financial management and banking tasks require someone with a solid understanding of finance, while legal matters may necessitate the appointment of a competent lawyer.

According to Makhija, it is crucial to execute the PoA or mandate in favour of a reliable individual as these documents confer considerable authority over sensitive financial and legal matters, potentially rendering the PoA grantor vulnerable to misdeeds by the holder.

Restrict the attorney’s power

When granting a PoA, it is prudent to avoid granting broad and unconditional authority to your attorney. “Opting for a special PoA over a general PoA is recommended, as it defines the limited purpose and scope of the POA and restricts rights,” says Dubey. For instance, an NRI granting a PoA for property management and bank account operations should explicitly prohibit buying or selling property and closing accounts.

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

Revoke the PoA once the task is complete

Unless an expiration date is specified, a PoA remains effective indefinitely until revoked. But PoAs often lack an end date, rendering them valid for extended periods. According to Alay Razvi, Managing Partner, Accord Juris, it is prudent to grant specific powers to a PoA with defined timelines, which can be extended as needed. This ensures the PoA's validity ends on completion of the specified objective, such as a property transaction. Razvi further recommends incorporating a clause revoking the PoA to address potential breaches.

The validity of a general PoA automatically expires on the death of the principal. Similarly, a special PoA stands terminated on completion of the specified task, unless the task is recurring.

*Examples meant for illustrative purposes; based on cases narrated by estate planning advisors and lawyers.