A power of attorney for property authorizes another person to transact business for you.  The power of attorney for property is also known as a general power of attorney, durable power of attorney, financial power of attorney, and formally as the Illinois Short Form Power of Attorney for Property.

Why Have a Power of Attorney?

What would happen if you were in an auto accident and wound up in a coma?  Could your spouse sell assets to pay the medical bills?  If you were going to be out of town at the time you wanted to close the purchase of some property, how could you do that?  If you were afflicted with Alzheimer’s, would anyone be able to manage your investment account for you?

The way to deal with each of these situations is to execute a financial power of attorney that names as your agent someone you can trust to handle business for your benefit alone.  Then, if any of these or other situations arise, you will have a mechanism in place whereby your agent can act for you and your best interests without having to petition the court – if you have a general power of attorney.

What if You Don’t Have a Power of Attorney?

There are various ways to own assets (bank accounts, real estate, investment accounts, etc.).  You can own them solely, which means in your name alone.  You can own them jointly with another (like your spouse). You can hold assets in a trust, corporation, partnership and in other ways.  But the two most common are sole ownership and joint tenancy.

If you own a car in your name, and it needs to be sold, who can sell it?  You can, of course.  Can anyone else?  No.  And if you were in a coma as a result of an accident, could your spouse sell the car to raise money for expenses? No, because she is not the owner.

If you own a house jointly with your spouse and then are afflicted with Alzheimer’s and need nursing home care, can your wife sell your house?  No, the house is held jointly and must be sold by both parties.  But since you have Alzheimer’s, you would not be competent to sign a deed.

In order to sell your car and the house, your spouse would first have to bring an action to be appointed as your guardian.  That is a probate court proceeding that takes time and money, and sometimes does not accomplish what you would like it to.

But if your spouse had a durable power of attorney, she would have the authority to act for you without having to resort to the probate court.

Who Should Be the Agent Under Your Power of Attorney?

You can name anyone who is over 18 as your agent.  But you want to be careful who that agent is.

A power of attorney authorizes your agent to transact business on your behalf and solely for your benefit.  That is a very useful power – but also a dangerous one.  If you grant power to someone, there is a chance that such power can be abused.

The agent stands in a fiduciary relationship to the principal (you).  As a fiduciary, the agent may act only on your behalf.  He may not benefit himself – only you.  That is what the law says.  But the law can be broken.  You don’t want a situation where an agent has absconded with your money.  You would have a right to sue him for the money, but the money might be long gone. Therefore, you must select as an agent only someone in whom you have the highest degree of trust.  If you do not have that kind of relationship with someone, it is probably best to not name an agent at all.

Can You Limit a Power of Attorney?

Two of the safeguards in the statutory power of attorney are these limitations:

         ? You can limit the type of transactions that an agent may handle for you.  The power of attorney form lists all the permissible types of transactions.  If you do not want your agent to handle a particular type of transaction, you simply cross it out. You can even limit the power of attorney to a single transaction, such as is commonly done when the principal can’t attend a real estate closing and names an agent to handle it for him.

          ? You can limit the time during which the power of attorney is in effect.  You can set forth specific start and end dates.  You can even state that the power of attorney doesn’t become effective until a certain event happens (such as your physician diagnosing that you are unable to handle your business affairs).

Should You Have a Power of Attorney?

A power of attorney for property can be in important tool in your estate planning arsenal.  But it is not for everyone.  You need to know how it would work for you, what are the risks and benefits.