Attorney-In-Fact

Updated on April 4, 2024
Article byPrakhar Gajendrakar
Edited byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

Attorney-In-Fact Meaning

An attorney-in-fact is legally authorized to act on behalf of a principal. They are also referred to as an agent. The term principal refers to the individual who appoints an agent. The agent can make financial decisions and represents the principal in business meetings. It is a formal arrangement legalized by a document known as a power of attorney.

Attorney-in-Fact

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A power of attorney mentions details about the agent, their roles, responsibilities, limitations, and in some cases, the duration of the arrangement. For example, the agent does not require formal training; it could be a close friend or a family member. Also, the principal can appoint more than one agent to represent them.

Key Takeaways

  • An attorney-in-fact is a person who represents a principal. The agent makes decisions about business, investment, finance, real estate, tax, and even personal matters. The power of attorney document outlines the authority of the agent.
  • Agents perform a crucial role when a principal cannot act at the time of the anticipated incident. It may be due to absence or disability; the limitations could be permanent or temporary. For example, travel difficulties, accidents, illness, etc., could cause limitations.
  • The agent’s signature becomes the signature of the principal. In business meetings, the agent can represent the principal as a proxy.

Attorney-In-Fact Explained

An attorney-in-fact is legally designated to act on behalf of someone to make decisions about business and finance. The designated person acts on behalf of a principal. It is a legal provision where individuals or businesses can appoint someone to represent, sign, attend meetings, and make decisions on their behalf.

A power of attorney formalizes this arrangement. A power of attorney is a legal document—a written authorization. An individual (the principal) signs a power of attorney, designating someone else as their agent.

What is a Power of Attorney?

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A power of attorney comes in handy when the principal cannot act at the time of the anticipated incident. It may be due to absence or disability; the limitations could be permanent or temporary. For example, travel difficulties, accidents, illness, etc., could cause limitations.

The authority of an attorney-on-behalf varies from state to state (depending on applicable state laws and bylaws). Sometimes, the agent acting on behalf of a principal is limited by jurisdiction. But in most cases, this arrangement is the most convenient way of enabling someone to act on their behalf.

The affidavit of attorney-in-fact highlights legal matters, tax obligations, real estate, finance, private, and business matters as the primary roles of the agent.

It is important to note that this authority is temporary—tills it gets revoked by the principal. However, a power of attorney becomes null and void in case of death. Thus, the agent ceases to exist. Also, the agent is liable to incur losses on behalf of the principal. The attorney-on-behalf signature becomes the signature of the principal. In business meetings, the agent can represent the principal as a proxy.

On behalf of the principal, an agent can cash checks, manage bank accounts, trade on stock exchanges, make fund transfers, file lawsuits, and file for divorce. In real-world scenarios, real estate is the most common usage. Principals appoint agents to grow assets and manage real estate. The agent can trade, sell or initiate rental agreements. They can also amend retirement plans, make donations, pay corporate taxes, and organize charities. The agent’s authority is valid till a principal dies or the period mentioned in a power of attorney ends.

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Examples

Let us look at attorney-in-fact examples to understand the legal arrangement better.

Example #1

Arthur owns a multinational company in New York; he is busy and makes many business decisions daily.  He initiates multiple financial transactions—he signs checks and documents.

But Arthur has to visit South Africa to finalize a business deal in person. Arthur is leaving New York for three months.

But Arthur’s New York operations require someone who can make decisions and be present in person. Thus, Arthur transfers a power of attorney to his wife, Abigail. Here, Abigail is the attorney-in-fact.

It is a formal process; Arthur’s lawyers draft a power of attorney document clearly stating Abigail’s roles, responsibilities, and duties.

For the next three months, Abigail has the authority to run the company, sign checks, make transactions, initiate trades, invest in stocks, schedule meetings, and make critical financial decisions. In addition, a power of attorney enables Abigail to represent Arthur in private matters; she can make personal decisions on behalf of Arthur.

Example #2

Esther owns a small company. In addition, Esther possesses tangible assets like homes, buildings, and apartments. Esther is part of a big family—she has many siblings. Unfortunately, there are property disputes between the siblings. Esther inherited the property in question from her father.

Suddenly, Esther is diagnosed with a brain tumor; she has to undergo surgery immediately. However, Esther does not trust her family members to act in her best interests. Thus, she prepares a power of attorney document and appoints her best friend, Catherine, as the agent.

When Esther undergoes surgery, she is incapable of making decisions. Thus, Catherine (agent) makes decisions on behalf of Esther (principal). Catherine is authorized to make decisions about Esther’s financials, business, and private matters.

The surgery went well, and Esther recovered rapidly. When Esther regains her strength, she transfers power of attorney back to her. Here, Catherine’s authority was limited by time. The principal can take back the agent’s decision-making ability at any time.

Attorney-In-Fact vs Power Of Attorney

The Attorney-In-Fact vs the power of attorney comparisons is as follows.

  • The term attorney-in-fact refers to a person—the agent who makes decisions on behalf of a principal. On the other hand, the term ‘power of attorney’ details the agent, their roles, responsibilities, and limitations.
  • Multiple agents can act on behalf of the same person, but there can only be one power of attorney document.
  • An agent cannot represent the principal inside the court of law. The power of attorney procedures laws varies from state to state.
  • The principal can appoint an agent using the power of attorney document. In contrast, the document must be registered by a registrar to be considered valid.

Frequently Asked Questions (FAQs)

1. What is the purpose of an Attorney-in-fact?

A principal opting for an agent may appoint them for multiple reasons; to make business or personal affairs decisions. Power of attorney regulations varies from state to state.

2. Who can act as an Attorney-in-fact?

The agent needs to fulfill the following requirements:
– Should be a legal adult by jurisdiction laws.
– The individual should not be bankrupt; and should not be undertaking bankruptcy filing at the appointment time.
– Cannot be an employee, operator, or owner of the extended care where the principal resides.
– Unlike lawyers, agents do not need formal law certifications. Instead, the principal often chooses family members, relatives, friends, or close kin.

3. What are the responsibilities of an Attorney-in-fact?

The primary responsibilities are as follows:
– To represent the principal in legal proceedings and business meetings.
– Conduct business and make financial decisions and sign in place of the principal
– An agent can open and close accounts, pay bills, withdraw funds, trade, and invest in securities and assets on behalf of the principal.

This article has been a guide to Attorney-in-Fact and its definition. Here, we explain it with examples and compare it with a power of attorney. You can learn more about it from the following articles –

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