A power of attorney is a flexible legal tool, as useful for huge business transactions as it is for simpler matters, like appointing someone to manage your bill payment schedule while you are on vacation.

It is a formal document, made by deed, by which one person empowers another to represent him or to act on his behalf for certain purposes.

The person granting the power is called the donor and the person on whom the power is conferred is called the donee or the attorney.

The donee need not be a person with a legal background; it is common to appoint trustworthy relatives or friends.

The power can be general or limited. If general, the donee is authorised to do anything that the donor can legally do.

If limited, the donee may only have authority to deal with one particular matter, for example, the sale of property.

The power may expressly state that it is effective only for a specified period or only while the donor is out of the country. In such cases, the power will end as soon as the specified period expires, or the donor returns to deal with his own affairs.

A power of attorney may also be included in business transactions.

For example, when borrowing money to purchase property, the borrower may give the lender a power of attorney to sell the property should he, the borrower, default on the loan.

A power of attorney does not survive a donor's subsequent legal incapacity.

This means that if you grant a power of attorney to someone, and you later lose physical or mental capacity to look after your own affairs through illness or an accident, that "ordinary" power of attorney is automatically terminated.

For this reason, elderly persons or persons suffering from a debilitating illness may consider granting an "enduring" power of attorney.

This is particularly appropriate for those persons who are housebound, or who are in residential or nursing homes, and cannot get out to the bank or otherwise attend to their affairs.

Of course, the donor of an enduring power of attorney may continue to manage his own affairs if he is still capable of doing so.

The documents granting the power should clearly state that it will only come into effect on the presentation of a medical certificate from the donor's doctor, stating that the donor is no longer capable of looking after his own affairs.

It is important that the donor of a power of attorney fully understands what he is doing, and is not unduly influenced when choosing the person who will be looking after his interests; otherwise, the courts may find that the power of attorney is invalid. A donor will generally appoint only one person to act as his attorney.

However, it is also possible to appoint two or more persons. In such cases, the donees will either have a 'joint' power of attorney or a 'joint and several' power of attorney.

A joint power of attorney requires that all of the donees must agree when making a decision.

This acts as a check on each attorney, as a joint attorney will not be able to deal with the property or money of the donor without the consent of the other attorney(s).

If one joint attorney dies, the appointment of the surviving attorney(s) automatically terminates. Alternatively, if it is a joint and several power, one attorney can act for the others.

If one donee dies, the others may continue to act for the donor.

Joint and several powers are normally given when it is expected that one or more of the attorneys will sometimes be unable to act, for example because he or she travels frequently, or because one or more of the attorneys is elderly and may predecease the donor.

All powers of attorney are automatically revoked on the donor's death, after which the donor's Will determines the disposal of his property.

It is important that you choose your donee(s) very carefully and always keep in mind that you are placing a large amount of power and trust in them.

You should therefore only appoint competent persons who are honest and reliable and who have a full understanding of your wishes.

Attorney Jackie Stirling is a member of the Funds and Investment Services Team within the Corporate and Commercial Practice Group at Appleby. A copy of Mr. Stirling's column can be obtained on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.