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Risks of granting a Power of Attorney

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A power of attorney is a legal document which allows an individual to designate someone who they trust the right to make financial decisions on your behalf if you cannot do so yourself. When you grant a power of attorney you are known as the ‘principal’, whereas the person appointed to act on their behalf is known as the ‘agent’. 

A power of attorney can be drafted to allow an agent to manage your financial affairs such as a business, real estate, pension, insurance, banking, and investments, or managing your health and well-being.

If you do not have mental capacity to deal with your financial affairs personally, then it is important to have a power of attorney in place. For instance, banks or building societies will not talk to relatives of their customers unless a power of attorney is in place. 

If you do not provide a POA to a family member or friend before you lose capacity, your family will need to make an application to the Court of Protection where a deputy will be appointed to have the authority to manage your financial affairs on your behalf. 

It is important to get a power of attorney in place as soon as you can whilst you have mental capacity to do so as a POA can only be registered while you have mental capacity. Having a POA in place ensures decisive action can be made in regards to your finances in the event that you find yourself not having mental capacity. 

Although a power of attorney is a convenient route to go down when you cannot deal with your own personal financial affairs, there are risks associated to appointing an agent when granting a power of attorney. 

Granting a power of attorney to an agent allows them to have complete control of your personal assets and provides them the power to manage your assets in your personal interests. But there may be a chance that they abuse their power for their own interests rather than the principal’s interest, which raises concerns of trust. They may withdraw money to spend on themselves, make poor investments, misuse your finances, and incur debt and take out loans in your name. This not only has a detrimental impact on your finances and credit rating, but it may also create tension with family members. 

In order to prevent an agent going rogue and acting against the interest of the principal, it is important for the principal to select an agent who they can trust and are confident they would act in their personal interest and follow your instructions. An agent can be anyone, it could be a spouse, family member, friend or neighbour. Trust is a key requisite when granting a power of attorney.

Deciding on who to appoint as the agent needs to be carefully thought through and any decision made must not be impulsive. The agent will have the authority to manage your financial affairs so it important to choose an agent wisely. An agent should be someone who you can trust as they will be the one who manages your financial affairs and make decisions in your best interests.

In essence, the agent is legally obliged to enter the principal to any contract or agreement as they see appropriate without the agent personally taking on any liability legally or financially.

There has been criticism of power of attorney’s in regards to a lack of transparency and accountability. If the agent oversteps their boundaries or takes actions which are not in your personal interests, then it would be difficult to relay accountability to the agent for wrongful conduct particularly since you have granted the power of attorney to the agent allowing them to conduct affairs on your behalf.

However, if an agent’s conduct is outside the scope of powers granted then they may be a chance for the principal to make a claim.

To prevent an agent going rogue and protecting your interests, it is advisable to have provisions in the POA to safeguard your interests by deciding:

  • Who to appoint as attorneys
  • When to register the document
  • Whether to implement any restrictions 
  • Where there is more than one attorney, how the attorneys make decisions

A power of attorney can be drafted to limit or restrict the powers an agent can have when managing your financial affairs. A power of attorney can be drawn for a specific transaction, or creating a temporary power of attorney that is temporary and revocable, or limiting the validity of the power of attorney to a certain period. 

The scope of a power of attorney can be narrow where it is specific to a transaction such as the sale of a house, or it can be broad in nature where a power of attorney can be drafted to manage all financial affairs, or it can be authorised for only a specific period of time.

Should you require any additional information in relation to Lasting Power of Attorney  then please get in touch at [email protected] or call our team on 0330 127 8888 and our team will be more than happy to help.

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