Should I Serve as an Agent Under a Financial Power of Attorney (POA)?

Transcript

Jean Carter:  Hello. I’m Jean Carter, an ACTEC Fellow from Raleigh, North Carolina. With me is Steve Murphy, an ACTEC Fellow from Charlottesville, Virginia. Our topic today is serving as an agent, or an attorney-in-fact, under a power of attorney.

I’m going to jump right in, Steve. A friend of mine has asked me to serve as their attorney-in-fact under their power of attorney. What does that mean?

Attorney-in-Fact Under a Power of Attorney (POA)

Stephen Murphy: Hi, Jean. Thanks for having me. That’s a great question. First of all, as you’ll see, this is an important role, so, you can take it as a compliment. It means that this person has a lot of trust and confidence in you. But before we get into the details, here are a few words on the terminology we’ll use.

When we refer to a power of attorney, we’re usually referring to a property power of attorney or a financial power of attorney. The power of attorney is the document. As we’ll see, that document will be important. It will provide some specific powers and limitations on your role.

You would be the agent, or the attorney-in-fact. The person that gave you this power is called the principal. The power of attorney gives you, as agent, the power to act on behalf of that principal with respect to their property, finances, and similar matters. We often say that this gives you the power to step into his or her shoes.

Responsibilities of the Agent Under a Power of Attorney (POA)

Jean Carter:  So, if I serve, what will my responsibilities be?

Stephen Murphy: We can consider the powers you might be given, and also your duties and responsibilities. All of this will depend on the document, the type of power of attorney, and state law. But generally, you’ll need to act on behalf of the principal. You’ll need to act properly and in good faith.

As for more specific responsibilities, typically, your powers will be to act on behalf of the principal with respect to their property and finances. It might be simple matters, like paying bills and determining which bills to pay, including lawn care, utilities, and phone, and dealing with creditors, like a credit card company. Or maybe more complicated matters, like signing a tax return, managing investments, or managing a business. Maybe even big-picture matters, like paying a premium on a life insurance policy, or making gifts to family, or making gifts to charities.

Hiring Professionals to Help with a Power of Attorney (POA)

Jean Carter: That’s a lot of responsibility. Can I hire someone to help me?

Stephen Murphy: Well, I would say that depends on the document. The power of attorney might provide some guidance or limitations here. Generally, yes, I would say you can and probably should hire people to help you. As examples, you can hire an accountant to help you with tax preparation, an investment advisor to help you manage investments, even an attorney to help with any legal advice or legal issues, and maybe help you understand your roles and keep you out of trouble.

It’s often a good idea to stick with the principal’s current advisors. That way, those advisors have good records of what the principal has already been doing. Or you might consider using your existing advisors, if you think that will be in the principal’s best interest and will help everything run smoothly. And then, you can probably pay for those advisors out of the principal’s own funds.

Liabilities of the Agent Under a Power of Attorney (POA)

Jean Carter: So, what happens if I make a mistake while I’m doing this?

Stephen Murphy: This all comes back to your overall duties and responsibilities. First of all, I should say that you should keep good records. You should document why you made certain decisions. That will help, so that if any of these actions are questioned in the future, you have records. Don’t assume that you’ll remember months from now exactly why you did something. You should also do things like avoid conflicts of interest, such as purchasing assets from the principal. You should also act generally with care, competence, and diligence.

But if you do make a mistake, then the principal or the principal’s heirs might challenge that. They might ask you to reimburse the principal for assets you improperly distributed or paid. They might ask you to cover any liability that you caused. They might ask you to be removed as agent. They might even ask that you prepare a kind of accounting of your activities as agent.

Jean Carter: So, I think what you’re saying is, I could be personally liable if I do something wrong.

Stephen Murphy: Yes. If you made a mistake and you’re found liable, then you would need to make the principal whole from your own funds. But this brings up another question. Look back at the document. The document might limit the kinds of things you can be held liable for. Typically, the agent is liable whenever they acted negligently. Sometimes we think of this as, “You should have known better,” or “A reasonable person would have acted differently.”

But the power of attorney might have a clause that says you’re only liable if you acted with gross negligence or willful conduct. As an example, we might think of this as, “You did know better, and you did it anyway,” or “You meant to break the rules.” That clause doesn’t mean you’re completely off the hook, but it provides some protection and might help avoid some tension or disputes.

Questions to Ask Yourself Before Becoming an Agent Under a POA

Jean Carter: Well, Steve, I’m going to ask the big question. Should I serve as attorney-in-fact for my friend?

Stephen Murphy: Well, great question. First of all, I’m really glad you’re asking it. Lots of people just say yes and end up putting themselves and the principal in a difficult spot. Here are some things to think about as you answer that question for yourself.

As I’ve noted earlier, this is not an honorary title. This doesn’t just mean that you’re the best friend or closest family member of the principal. This has real powers, real duties, real responsibilities, and real consequences and liabilities. First of all, you might ask, are you okay with serving in that important role?

Second, do you have the expertise? Do you think you could understand the issues and stay organized? Do you have the right kinds of support around you?

Third, and perhaps most importantly, do you have the time and energy? This can be really time-consuming. Just imagine sifting through someone’s finances and staying on top of bills. So, if the answer to all these questions is yes, then yes, you might consider serving. But as we’ve discussed, this is an important question. It shouldn’t be taken lightly.

Jean Carter: Steve, this is great information. Anything else I should consider on this?

Stephen Murphy: I would say the key takeaway here is communication. It starts with an open conversation with the principal about what are your powers, duties, and responsibilities. Then, it continues with a conversation with the principal about their state of affairs. Maybe you don’t need to have a current balance sheet from them right now, but it would help if the principal has good records, so you know what to do if you’re asked to serve.

Then, if you are serving, this also includes communication with other interested parties, like maybe staying in touch with family members and heirs, so they know what you’re doing and aren’t suspicious of actions you’re taking or not taking.

I guess I’ll say again, congratulations that someone thought of you for this important role. It’s not one to be taken lightly. But with the right issues in mind and the right help, you can make sure that the principal is cared for and in the right ways.

Jean Carter: Steve, this is great. I appreciate your giving us this information today. I want to encourage people to also look at the ACTEC website (actec.org/estate-planning), where there’s some other information on similar topics. Thank you.

Stephen Murphy: Thank you.