How to draft a functionally sound power of attorney

A PoA helps to get your administrative work done with ease in case you fall ill, become too old to manage daily chores or live abroad and can’t visit India often

Representative image

In May 2020, Mumbai-based Rahul Kumar, 68, had signed a power of attorney. He entrusted a close friend with taking care of his banking transactions, collecting rent from his properties and managing a few other areas of his finances. Kumar lives alone in the city – his only son lives abroad. Kumar did the right thing. He suffered COVID-19 in September 2020. His friend stepped in to help, in addition to arranging money for paying his medical bills.

A PoA is a powerful tool that empowers a close family member or a trusted friend to take care of our finances, in case we are unable to ourselves. That is why many non-resident Indians (NRI) and even senior citizens use it.

Use it well and a PoA can help you in difficult times. But an ill-framed PoA can bring lots of harm. Here’s how to make a solid PoA.

A PoA helps to get your administrative work done with ease in case you fall ill, become too old to manage daily chores or live abroad and can’t visit India often.

For instance, NRIs appoint constituted attorneys for registration of new tenants, rent collection, tax payments, financial investments, communications with banks, etc. “The constituted attorney cannot do anything other than what she has been granted the powers to do in the instrument,” says Malav Virani, Partner at MDP and Partners, Advocates and Solicitors.

There are two types of PoAs: general and special. A general PoA confers general powers to the agent across all matters with no restrictions. A special PoA is restrictive and grants power to the agent for dealing in certain specific matters such as bank operations, collecting rents and signing certain agreements.

“The principal (the person who grants a PoA) must do buying and selling of property himself instead of appointing a constituted attorney, as this involves a large financial transaction,” says Shailendra Dubey, Partner at PlanMyEstate Advisors LLP.

Your executor should be someone who should carry out your tasks well. Apart from being trustworthy, she should also be willing to participate. And it helps if she has knowledge of the task on hand. For instance, if you want someone to manage your finances and bank accounts, then you need someone who understands finances well enough. If you want somebody to tackle legal matters here in India while living abroad, then a good lawyer may lend a helping hand.

You must register your PoA, if you’re dealing with a property, according to PoA Act 1882. “But, many financial institutions are not comfortable with an unregistered PoA. Registration brings in more credence to the document,” says Dubey. So, from that perspective, registration is now being insisted upon by most of the financial institutions, which include banks, mutual fund companies and insurance companies.

What happens if an NRI appoints a constituted attorney while staying abroad and sends a deed (written instrument) to India? “The attorney holder needs to get it registered in India within 90 days of receiving the deed. After completing the registration process, the PoA instrument becomes valid in India,” says Dubey.

Avoid giving verbal instructions as part of your PoA. “A PoA works best if instructions are clearly written for specific tasks to be completed within the stipulated timeframe in the PoA instrument,” says Priyesh Sampat, Head Strategic Solutions at Sampat Investments.

“When a financial or non-financial transaction is being done by the attorney, she must take a separate consent from the principal, or an email communication should happen between the two and have a record of that,” says Dubey. That way, an attorney can stay protected from the liability of any actions taken on behalf of the principal and avoid conflicts.

You can give a PoA to your family, friends or even to outsiders such as professionals. “A general PoA to a family member or trustworthy business partner can be safe, but while issuing powers to professionals or third parties, be specific. Restrict their powers to avoid any misuse,” says Sampat.

Very few people know that the power of attorney instrument remains an open document until someone specifically revokes it or the principal mentions end date in the instrument. Many times people issue PoA instrument with no end date. So, it remains valid document even after a few years down the line. “There’s a deed of revocation that needs to be executed by the principal after the task gets completed or the best practice is that whenever you write a power of attorney instrument, mention the purpose specifically,” says Dubey. For instance, buying or selling property. So, when the transaction is completed, the validity of the power of attorney instrument expires.

A general PoA ceases to exist upon the principal’s demise. In the same way, a special PoA will cease to exist on the completion of the specific task, unless it is recurring and specified.

Representative image – courtesy money control.