One way to give another person the legal authority to manage your business affairs is by using a Power of Attorney. This is done when one person (called the ‘principal’) gives another person (called the ‘attorney-in fact’ or ‘agent’) written authority to perform acts in their name. The term, ‘attorney-in-fact’ is simply legal terminology—the person receiving the authority does not have to be an attorney. Normally a spouse or close relative is chosen. A Power of Attorney is usually given when the principal will be unavailable, or if heath issues are a concern. Being named as an agent places a high duty of responsibility on that person to act fairly and honestly. The acts of the agent are open to legal attack if they breach this special responsibility.

A Power of Attorney must be in writing, signed by the principal, and be properly notarized. While it is not required to be recorded at the Courthouse, the Power must be recorded if it is to be used to sell or refinance real estate.

There are several types of Powers of Attorney. One is a General Power of Attorney, where the principal gives their agent broad, sweeping authority to handle all of the financial affairs of the principal. A General Power of Attorney may not be used to sell or refinance real estate, unless it specifically includes that authority. When real estate is involved, a Specific Power of Attorney is usually required. It should specifically authorize the principal to sell real estate and sign a Deed, or refinance a real estate loan and sign a Mortgage and Promissory Note.

Usually, a Power of Attorney ends if the principal becomes incompetent, and it may lose it’s authority if enough time passes. To avoid such problems, a Durable Power of Attorney should be used. A power of Attorney is deemed durable when it contains the statutory language of KRS 386.093 that, “this power of attorney shall not be affected by subsequent disability or incapacity of the principal, or lapse of time.” Such language will insure that the Power of Attorney will survive the principal’s subsequent incapacity (mental or physical) and will not be voided by the passage of time.

No Power of Attorney survives the death of the principal. The authority to use a Power of Attorney ends with the death of the person giving the authority. A Power of Attorney may be revoked at any time by the principal. Such a revocation must be in writing, and if the original Power of Attorney was recorded at the Courthouse, the revocation must also be recorded.

Most of the recent litigation over Powers of Attorney has been over the agent’s use of the Power to transfer property to themselves without paying for the property. For example, a son would use his mother’s Power of Attorney to transfer her house to himself without any money changing hands. KRS 386.093 seems to restrict this practice by requiring that the Power of Attorney must specifically authorize the agent to make a gift of the principal’s property, or such transfers could be set aside.

Because of the possible legal problems involving the proper or excessive use of a Power of Attorney, many Lenders restrict or prohibit their use. You should always first check with your Lender to see what requirements they have established for the use of a Power of Attorney.

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