What Is Special Power of Attorney?
Appointing a special power of attorney means legally authorizing another person, called an agent or an attorney in fact, the right to act on behalf of another person, known as the principal, under specific, clearly laid-out circumstances.
Special power of attorney is also called a limited power of attorney. In the financial world, limited power of attorney, or LPOA, gives a portfolio manager the authorization to perform certain functions on behalf of a client in that client’s account.
[Important: By writing a letter authorizing a special power of attorney, an individual is giving another person the legal right to make decisions on their behalf.]
Understanding Special Power of Attorney
A power of attorney refers to a signed agreement between two individuals that allows one individual to act on the other's behalf in either a limited or broad capacity. The person who initiates a power of attorney, whether in oral or written form, is referred to as the grantor or principal. The authorized individual named in the agreement is referred to as the attorney in fact or agent.
A power of attorney generally falls into two categories: general and special.
How Special Power of Attorney Works
A general power of attorney grants the agent the legal right to make all personal and business decisions on behalf of the principal. An individual who will be out of the country for a year may give an agent extensive powers to carry out transactions such as personal and business financial transactions, bill payments, life insurance purchases, charitable donations, real estate management, and the filing of tax returns.
Unlike the broader general power of attorney, a special power of attorney gives the agent the authority to act on the principal's behalf, but only under certain, specified circumstances. Authority could be granted to allow the agent to buy or sell a home, withdraw money from a bank account, cash checks, or run a business.
Because this type of power of attorney is limited to what has been laid out in the signed document, it is particularly important that the principal is very clear about the powers that they want the agent to have. An individual whose physical or mental health is compromised may choose to assign a special power of attorney, giving the agent limited power to buy, sell or manage real estate on their behalf. Additionally, the principal may create more than one special power of attorney, naming a different individual in each one.
The special power of attorney is often used when one cannot handle certain affairs due to other commitments or for health-related reasons.
Under the common law, a power of attorney becomes ineffective if its principal dies or becomes incapacitated, meaning the principal is unable to grant such power due to physical injury or mental illness. However, a special power of attorney can be made durable.
A durable power of attorney is one that authorizes the agent to continue acting on behalf of the principal even after the principal becomes incapacitated, for instance, due to a head injury or Alzheimer’s disease. Under a durable power of attorney, the authority of the agent to act and make decisions on behalf of the principal continues until the principal's death. For an individual who does not already have a durable power of attorney in place and does not have the capacity to execute a special power of attorney, the court will impose a conservatorship or a guardianship to act on his or her behalf.
When an individual passes away, the special power of attorney becomes void, and a last will and testament or trust takes precedence.
- Appointing a special power of attorney means legally authorizing another person, an agent, to act on behalf of the person who made the appointment, the principal.
- The agent can act on behalf of the principal only under specific, clearly defined circumstances.
- A general power of attorney is broader, giving the agent the legal right to make all personal and business decisions on behalf of the principal.