What Is Limited Power of Attorney?
Let me explain to you what Limited Power of Attorney (LPOA) really is—it's an authorization that lets a portfolio manager handle specific functions for your account. Generally, this means the manager can carry out the investment strategy we've agreed on and deal with everyday business without bothering you every time.
Before You Sign
Before you put your signature on an LPOA, make sure you know exactly what functions you're handing over to the portfolio manager, because you're still on the hook for those decisions.
Understanding Limited Power of Attorney
These LPOA authorizations are popping up more often as investors like you shift to boutique money management firms and registered investment advisors (RIAs) instead of the old-school brokerage houses.
Key Takeaways
- A limited power of attorney lets a portfolio manager make routine decisions without reaching out to you, the account holder.
- The portfolio manager is never allowed to pull money out of the account or alter the beneficiaries.
- You, as the account holder, can set other specific exceptions to this limited power of attorney.
How It Differs from General Power of Attorney
Unlike a general power of attorney, a limited one keeps the designated person's authority confined to a particular area—in this context, that's executing the investment strategy you and the manager have agreed upon. With an LPOA, the manager gets to buy and sell assets, handle fees, and take care of various forms that come up. But remember, only you can handle key account actions like withdrawing cash or changing beneficiaries. When you set up the account, you can clearly state any other powers you want to keep for yourself.
Limited Power of Attorney Types
There are a few variations of LPOA that come into play in certain situations. Springing powers mean the LPOA only kicks in when a specific event happens, like if you die or become incapacitated—it's often tied to a will or family living trust. Then there's durable and non-durable: A durable LPOA keeps the manager's authority going even if you die or can't make decisions anymore, but most LPOAs are non-durable, so they stop working in those cases.
Limited Power of Attorney Forms
When you open an account with a portfolio manager, you'll usually fill out a power of attorney (POA) form. Most of these forms let you pick between an LPOA or a full power of attorney. Keep in mind that a limited power of attorney sticks the authorization to a specific area, like investment management. You have to name an attorney in fact, which is typically the portfolio manager, and include details for any other managers who might make decisions for you. Once it's filled out, both you and the attorney or attorneys in fact need to sign it. If you're not sure or feel uneasy about what you're authorizing, get a lawyer to look over the POA form before you sign.
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