Limited Power of Attorney Explained

Briefly describe the nature and purpose of a limited power of attorney

contractsA limited power of attorney, also known as a “special power of attorney,” is a legal document through which you, the “principal,” grant powers to act on your behalf to a named person, your “attorney-in-fact.” This document will let your attorney-in-fact act on your behalf over the powers that you granted.

Often, principals will grant someone with a limited power of attorney over one task, and only for so long as necessary until the principal is able to resume handling that matter on their own. The principal must sign and date this legal document for it to be valid. People often grant powers of attorney to their spouse, to very close family members, or to very close friends.

What situations commonly see the use of a limited power of attorney

For military personnel who are about to deploy overseas, it is often wise to grant someone with a power of attorney to handle their financial, family, or realty affairs. The same is true of business people who travel frequently and for long periods of time, and for people facing a very serious crisis, whether it is financial, emotional, or medical in nature. People undergoing a surgical operation may need to prepare a limited power of attorney, in case their recovery is delayed and they may remain incapacitated for a period of time.

In other words, preparing a limited power of attorney is wise for anyone who, for whatever reason, may be unable to handle their financial, family, and/or realty affairs. If you have no limited power of attorney but you are unable to make such decisions, then your spouse or other close family members will likely be forced into costly and time-consuming delays before they will be allowed act on your behalf.

How does a limited power of attorney create a fiduciary relationship between the third party and the client?

By naming someone as your attorney-in-fact, you designate them as an agent who is authorized to act on your behalf. In the eyes of the law, they are you for that limited purpose and for that limited time period. This is why it is advisable to only grant a power of attorney in someone you deeply trust, only if necessary, and only for as long as necessary.   

What are examples of self-dealing transactions that are prohibited as a result of this fiduciary duty?

The agent has a fiduciary responsibility solely to the principal. They must act with the utmost good faith and loyalty on behalf of the principal. In cases involving an attorney-in-fact’s breach of fiduciary duty, courts typically find the following: First, that the agent must keep the principal informed of developments that affect the principal’s interests; second, that the agent may gain a profit only if he or she informs and gets consent of the principal; third, that the agent may not acquire an interest adverse to the principal or reap a secret profit; and fourth, that the agent may not transfer the principal’s property to him or herself (or to others) unless the power of attorney specifically confers that power. If the agent fails to act in accordance with these fiduciary duties of fidelity and good faith, the agent may be liable for breaching (that is, breaking) the fiduciary duty. The key word is that they “may” be liable, but may not be, depending on the circumstances and how egregiously unfair and exploitative their conduct is.

That is why it is advisable to include specific instructions with your power of attorney. With such instructions, it would be easier for you to prove that your agent breached their duties or stole from you. If the agent receives powers without instructions, then the agent has far more discretion to determine the principal’s wishes, and a court will be more hesitant to step in and determine what the principal must have wanted, should have wanted, or would have wanted from the agent.

How might the third party legally engage in self-dealing transactions that are normally prohibited?

Power of attorney scams are not an uncommon occurrence, particularly for older individuals. If you grant someone powers of attorney over your financial assets or bank accounts without specific instructions and limitations, then they may be able to get away with robbing you blind. As long as they exploit their powers in a way that is not clearly against your desires, then a court will likely have no authority to fix the problem. Because you granted your attorney-in-fact with such broad powers, a court would likely be unable to find that they exceeded the scope of the powers that you granted to them.

Specifically, they may be able to get away with investing your money into their own businesses or the businesses of people they know, selling your property to someone they know (and they would likely pocket a generous transaction or referral fee), transferring title and/or property into their own name or the name of someone they know, or using your property or belongings to benefit them or people they know.  

This is why it is important to consult with an experienced attorney before granting someone with a limited power of attorney. Let that attorney draft a thoughtful, well-worded, and secure limited power of attorney for you, one that is tailored to fit your unique set of desires and needs. Keep a copy of your power of attorney, and ask your attorney to keep a copy as well at his or her law firm. Make sure that your attorney-in-fact understands exactly what powers they have, and what are the limitations on their powers.  

Please call us if you have any questions.

Boris Kuperman
Managing Partner
Gore & Kuperman, PLLC
4160 Chain Bridge Road
Fairfax, Virginia 22030
703-385-7300 ext. 113

DISCLAIMER: The information above is provided for general informational purposes only, but not provided for or as legal advice. Please consult with a licensed attorney in their state to discuss any questions they have about powers of attorney.