Legally speaking: What is power of attorney, and when do we need it?

By B. Scott Skillman

Scott is an Indiana attorney in his 32nd year of practice. He is a member of United Hebrew Congregation and proud father of two children. Scott reminds us his columns are intended for informational use only and should not be considered “Legal Advice.” He believes everyone should feel comfortable asking questions of their attorneys. “There are no bad questions — only vague answers.”

Continuing my series on routine planning to assist family and friends in the event of incapacity or death, this month’s column focuses on the creation and use of a “power of attorney.”

People often assume that power of attorney has something to do with a lawyer. The term “attorney” often involves lawyers, but it actually applies to persons authorized to act on behalf of another.

So, for our purposes here today, keep in mind that lawyers need not be involved at all. Which is not to say they should not be involved, but only that their involvement is not required.

Item 1: What is power of attorney?

Most succinctly, a power of attorney is a statutorily authorized document that releases an entity from liability for tasks it performs on behalf of the issuer.

Example: I go to the bank and instruct the teller, “I want to withdraw money from an account that is not my own.”

The teller laughs at me and denies my request. But if I show I have a power of attorney from the owner of the account that authorizes me to act as if I were that person, the banker says, “Ok, let me keep a copy of that document and you may proceed.”

This protects the bank from liability if the account owner later returns and says, “Wait just a minute. I want my money back!”

Protecting those who act on your behalf

One should bear in mind power of attorney is there to protect those who allow others to act on their behalf. Key fact: the bank does not have to accept the power of attorney at all, but it usually does.

What does it mean that power of attorney is statutorily authorized? All states have laws that govern the use of power of attorney.

In Indiana, a series of statutes permit its use for all manner of things, i.e., banking, tax-filing, medical records, official state licensing activity, medical decision-making (more on that in upcoming articles) and other functions.

So, only those activities that have particular statutes can be authorized by the power of attorney. In full candor, it is difficult to imagine any lawful action that one might want to assign that is not covered by one of the statutes.

Item 2: Why use one?

The most common power of attorney is “durable power of attorney.” This is a temporary arrangement used when a person is unable to act on his or her own behalf.

That incapacity is generally temporary. Perhaps the individual is ill and physically unable to travel to a location and complete an important task.

Or, the individual is mentally incapacitated (temporarily) and cannot make sound decisions.

Getting critical tasks done

This is a powerful and indispensable tool for taking care of the basic things we need to get done. It helps family and caretakers accomplish these things for us, if necessary.

However, power of attorney is not without obvious risks.

Giving anyone access to bank proceeds is inherently risky. However, we can protect against these risks through careful drafting.

Perhaps one wants to give access but not full access. Limits on authority can be placed into the language of the document.

Next month, I will expound more on the when and how we create powers of attorney.

Meanwhile, I welcome feedback. Contact me directly or ask Norma to forward a question to me and I will respond.

Previous columns in this series

Part 1: Let’s discuss simple steps to plan for estate administration

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