Define Financial Power of Attorney

Requirements and Powers

Financial powers of attorney can be very limited or very broad, depending on how much power the person granting the power, known as the principal, wishes to convey. The laws governing powers of attorney differ between states, but all states require that these grants of power are made in writing, and can only be done so by an adult who is of sound mind. This means the person must be able to make his own decisions and understand the power he conveys. A person who is not of sound mind cannot grant financial power of attorney.

Financial powers of attorney exist between three main people or organizations: the principal, the attorney-in-fact and third parties with whom the attorney-in-fact interacts on behalf of the principal. For example, a principal can grant an attorney-in-fact the right to purchase real property on his behalf. The attorney in fact will then be able to buy a home in the principal's name while being the only person to deal with the seller. Once purchased, the home will belong to the principal, not the attorney-in-fact.

A principal can create financial powers of attorney that take effect immediately or at a later time. Those powers that take effect later are generally referred to as "springing" powers of attorney, and the principal can designate any conditions he chooses for when they take effect. For example, the principal can grant an attorney-in-fact financial powers of attorney in the event the principal has to travel outside the country and cannot attend to financial needs in person.

Powers of attorney terminate once the principal decides to end the agent-principal relationship, or when the principal becomes incapacitated or otherwise unable to revoke the power of attorney. However, principals can convey durable power of attorney that last even if the principal becomes incapacitated. These powers are commonly used by people anticipating end of life situations where they are under medical care or treatments that compromise their ability to make decisions. However, powers of attorney do not continue after the principal dies, even if they are made durable. All powers of attorney terminate upon the principal's death, or upon the attorney-in-fact learning of the death.