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What Is Naked Power?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 26 November 2016
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    Conjecture Corporation
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Naked power is legal authority exerted over an entity without a personal interest in the well-being of that entity. This legal definition of the term is slightly different from the way laypeople may use it, usually to discuss blatant displays of power by people in positions of authority. Attorneys, agents, and other parties can potentially have naked power in a legal situation in some contracts, and agreements may specify this kind of power, with the goal of having an agent whose self interest will not conflict with job responsibilities.

A very common example of naked power can be seen with trusts. At the establishment of a trust, the trustor grants the contents of the trust to specific beneficiaries and appoints a trustee who manages the assets. The trustee may not have a personal interest in the trust; she doesn't receive benefits, and her life is not impacted if the trust ends. She holds naked power, acting to make decisions on behalf of the trust without a personal interest in its well-being.

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Individuals with naked power still have duties and responsibilities. Trustees, for example, have a fiduciary duty to manage trust funds responsibly on behalf of the beneficiaries. If they fail to do so, they can be subject to legal penalties including civil suits brought by beneficiaries to claim damages. Likewise, naked power should not be abused, as for example if a trustee takes a personal payment out of a trust, violating the rules under which the trust was established.

This differs from a power with an interest, where power derives from the interest a person holds in an entity, and that person has a personal stake in the continuation of the entity. An example of this is an executor of an estate who is also a beneficiary. This person has a personal interest in making sure the estate is handled appropriately and quickly so he can inherit, yet also has a duty to settle the estate reasonably, without depriving other beneficiaries of their rightful proceeds.

Determining whether someone acts with naked power or power with an interest can be important in some legal settings. In court cases, an attorney may take time to explore the circumstances of a case with the goal of finding out more about the interests of various parties in the case. This could be a key part of a legal argument in a civil suit where parties are disputing over liability issues.

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