The Power of Attorney is a powerful document that can be crafted to ensure someone’s affairs are being looked after properly. What follows is the first in a series of articles we are writing on fundamental aspects of estates. There are certain essential items one should consider when they are planning for end-of-life matters. Below you will see the first of our multi-part series on the “Power of Attorney.”
The basic principle behind powers of attorney is that one person (the principal) gives another (the agent or attorney-in-fact) the power to act on his or her behalf, as long as the principal consents to the action. In other words, one person may act as if they are the other person, but only to the extent that that person gives them permission to do so.
A power of attorney is usually created through a written instrument, but no particular form of writing is required. It must be executed under seal if the writing executed by the attorney-in-fact is under seal. A power of attorney must be recorded if the agent wants to act on behalf of the principal with regards to real property. (see N.C. Gen. Stat. § 47-28). To execute instruments, it doesn’t matter if the attorney-in fact signs the principal’s name as the attorney-in-fact or signs his own name on behalf of the principal.
The writing defines the scope and duration of the power of attorney. A principal can give the agent very broad and general powers, or define them narrowly. The duration is set out in the writing and can be as long or short as the principal wants. Importantly, even if the principal says that the power of attorney is irrevocable in the writing, the principal usually will still have the ability to take the power away from the agent. The exception to this is if the power is coupled with an interest. If it is not coupled with an interest and the principal revokes when the writing says it is irrevocable, the principal may be liable in some way to the agent.
There are certain constraints on the agency-principal relationship that a power of attorney creates. The first is that the relationship is fiduciary; it “implies that the principal has placed trust or confidence in the agent, and the agent or employee is bound to the exercise of the utmost good faith, loyalty, and honesty toward his principal or employer.” SNML Corp. v. Bank of North Carolina, 41 N.C. App. 28, 37 254 S.E.2d, 274, 280 (1979). The second constraint involves public policy. Generally, personal services contract obligations can’t be delegated from the principal to the agent. For example, you couldn’t, in your powers of attorney, delegate an obligation to paint a portrait for someone. Even with a written durable power of attorney, the principal can’t give the agent powers that have been traditionally prohibited by common law, unless it has been changed by statute. The third constraint involves the “four undelegables;” that the attorney-in-fact can’t vote, get married, get divorced, or write a will for the principal, but there is some flexibility. In terms of voting, if there are constitutional implications connected to the voting right, it can’t be delegated. This is especially true if a statute requires a personal act. However, the power to vote may be delegated if the voting right has something less than a political election with constitutional implications attached to the right. With marriage, generally both parties need to be present (See N.C. Gen. Stat. § 51-1). In North Carolina “only a competent spouse may commence an action for absolute divorce”, N.C. Gen. Stat. § 50-22, but an attorney-in-fact may commence, defend, maintain, arbitrate, mediate, or settle any action under Chapter 55 of the N.C. General Statutes. With regard to wills, almost everyone agrees that you have to execute your own, meaning that you can’t delegate the authority to an attorney-in-fact. The statutes are in alignment with that (See N.C. Gen. Stat. § 31-11.6). The fourth constraint on the agent-principal relationship is a limited power to fund a trust. The power of an agent acting under a power of attorney to deal with a trust is expressly set out in N.C., Section 36C-6-602.1 of the Uniform Trust Code.
Finally, certain events can terminate the agency such as death of a principal, incapacity of the principal, death of the agent, incapacity of the agent, death or incapacity of one of several joint principals or agents, and revocation. The only exception to death of the principal ending the agency-principal relationship is if the agency is a power coupled with an interest. The agent’s authority is also ended by the principal’s incapacity. If the authority is under a durable power of attorney, this rule is different. (See N.C. Gen. Stat. Chapter. 32A). With regards to revocation, the principal can revoke the agency at will. The only exception is if the power is coupled with an interest. The principal only needs to give the agent notice of the revocation, unless the agent has been held out as a general agent to third persons. In that case, the third persons must also be notified. The common law rule in North Carolina is that a power of attorney under seal may be revoked orally.