A Power of Attorney is a document in which a principal appoints an agent to transact a variety of duties. The "principal" makes the appointment. The "agent" is the person appointed (also called an "attorney-in-fact" or "power of attorney").
The agent has a fiduciary duty to the principal which means that he or she owes the principal a high standard of loyalty and care. That fiduciary relationship includes the following duties:
- Exercising the powers for the benefit of the principal.
- Keeping separate the assets of the principal from those of the agent.
- Exercising reasonable caution and prudence.
- Keeping a full and accurate record of all actions, receipts and disbursements on behalf of the principal.
The most useful powers of attorney give the agent broad authority so that the agent can do virtually any kind of business transaction on behalf of the principal. For that reason, the person whom you select as your agent is of utmost importance.
In years past, persons who did not know of another person whom they wanted to entrust such authority would appoint a bank. For many people, that is no longer possible. Many of the larger, regional banks will not serve as attorneys-in-fact. They will serve as agents under agency agreements but generally the authority under those agency agreements is not as broad as under a general power of attorney.
Your selection of a capable agent should be someone who is scrupulously honest, maintains good records, understands his or her responsibilities, is wise enough to know his or her limits and is able to rely on competent persons for advice (e.g. investment advice).
Without the power of attorney (or revocable living trust), in the event of incapacity, you will be at the mercy of whomever the court appoints as guardian of your estate after an incapacity proceeding in court that can be long, expensive and emotionally draining for those involved.