What is an irrevocable power of attorney?
An irrevocable power of attorney is a document used in some business relationships. Whereas durable powers of attorney are usually used to give someone the authority to make decisions on your behalf in case you're in accident or unconscious, irrevocable power of attorney usually represents some contractual agreement in effect during your waking life. For most people, irrevocable power of attorney is therefore usually unnecessary.
Like any power of attorney, an irrevocable power of attorney gives an agent (the attorney in fact) the authority to make decisions, enter into contracts and generally act on the behalf of the person granting the power (the principal). Irrevocable powers of attorney are relatively rare, though, because they essentially operate like any other power of attorney, but are not unilaterally revocable by the principal. An irrevocable power of attorney can have a sunset provision, ending the assignment on a particular date or condition, but remains irrevocable until that time unless the parties agree to terminate.
There are a few situations where you might want to grant an irrevocable power of attorney. One might be if you enter into a contract where you authorise someone, such as a realtor or agent, to act exclusively on your behalf. An irrevocable power of attorney can grant that exclusive authority and limit your ability to get out of the agreement without consent from the other party. Another reason to grant an irrevocable power of attorney would be if you want to permanently dispose of assets, such as stocks or bonds, by transferring control of them to another party, such as the trustee of an irrevocable trust. A grant of irrevocable power of attorney can also be used as security on a loan.
A power of attorney is a document that identifies the parties to the agreement (the principal and the agent) and enumerates the powers or limitations created. State laws provide a uniform for powers of attorney with 13 areas where power can be granted, including real estate, stocks and bonds, litigation, banking and the formation of contracts. Any or all of these powers can be granted, limited or modified by a power of attorney, and additional powers can be added.
An irrevocable power of attorney creates a bond between the principal and agent, but one that is highly customised. For example, the irrevocable power of attorney with respect to real estate transactions can be limited to a single state or county. The powers granted with respect to securities can be limited in similar ways to certain kinds of transactions. Unless a sunset is specifically included in the document, the power of attorney cannot be revoked unless both the principal and agent agree, and execute a revocation. Otherwise, the power lasts until the death of the principal. The exception to this is when an ownership interest is conveyed along with the power of attorney, giving the agent the right to sell the asset under their own ownership rather than as agent of the deceased.
Just as an irrevocable power of attorney can have a date or condition that terminates the assignment of power, it can also have a date or condition precedent that sets it into effect. This is what's known as a springing power of attorney, because it automatically springs into effect on the set date or situation.