What is a Limited Power of Attorney?

Alexis W.

Limited power of attorney occurs when one individual gives a second individual a limited right to act on his behalf. The person establishing the power of attorney is called the principal. The person vested with the power of attorney is called the agent.

Man climbing a rope
Man climbing a rope

A principal can establish a power of attorney for a number of different purposes. For example, a general power of attorney would give the agent the unlimited right to make decisions and act on behalf of the principal. A limited power of attorney, on the other hand, vests the agent with more specific rights.

It is common for an individual to use a power of attorney to protect himself should he become incapacitated. For example, a person could give an agent power of attorney over medical decisions. This would mean the agent can make medical decisions for the principal if the principal was unable to do so. This is often referred to as a living will.

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Limited power of attorney can also be used to grant specific rights for an agent to control certain things. A principal could, for example, establish a limited power of attorney giving an agent control over a specific bank account. The agent would thus not have control over general financial matters, nor over health decisions; he would have a limited power to make decisions on the principal's behalf only with regards to that specific bank account.

Individuals can also set up a limited power of attorney in situations other than anticipation of becoming incapacitated. For example, if a person is entering the military and plans to be overseas, he may give his wife limited power of attorney or general power of attorney over certain assets he owns in case decisions must be made about those assets while he is overseas and unable to act.

Establishing power of attorney is an important financial and estate planning step for many. By limiting that power, principals can take steps toward protecting certain assets without giving up complete control to another. Individuals can also vest limited powers in different agents.

When establishing a power of attorney, the principal must be confident that he completely trusts the agent to act on his behalf. Likewise, the agent has a fiduciary duty to act in the principal's best interests. A formal letter or legal document must spell out the power of attorney agreement and the extent of rights vested in the agent.

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