A power of attorney for finance is essential to a comprehensive estate plan. So, what is it, and why is it important?
As with the agent for healthcare, the trustee, and the executor, the agent under a power of attorney acts as a fiduciary. This is someone authorized to act on behalf of another. Under a power of attorney, the agent is granted the authority to step into the shoes of the principal, who is the person on whose behalf the agent will act. The agent will make financial decisions when the principal is unable or unwilling to act on his or her behalf. The agent must operate in good faith, keeping in mind the best interests of the principal and her affairs. The agent is required to consider how the principal would handle a situation. As a fiduciary, if the agent abuses her power, she can be held liable for whatever actions she’s taken.
Limited and General Power of Attorney
An agent acting under a limited power of attorney is only authorized to do a specific thing. Their grant of power is limited and narrow in scope. An example: suppose the principal is traveling and at the same time needs to sign a document at home. Since she cannot be in two places simultaneously, she designates someone to execute the document on her behalf. The scope of that agency relationship is limited to executing documents relating to that one transaction. Nothing more.
Conversely, a grant of authority under a general power of attorney is broader. Here, an agent can handle all the principal’s financial affairs. This authority is limited only by any power of attorney document restrictions. This authority might include dealing with financial institutions (e.g., banks, brokerage houses, mortgage companies, IRS), working with realtors, accessing the principal’s digital accounts, and much more. This agent steps into the principal’s shoes and can do almost as much as the principal.
Durable Power vs. Springing Power of Attorney.
An agent’s responsibilities under a durable power of attorney start as soon as the principal signs the agreement. In most cases, the agent is not expected to take control until the principal becomes incapacitated. On the other hand, an agent appointed under a springing power of attorney only steps in when the principal becomes incapacitated. The principal must make clear her expectations as soon as possible. Imprecise expectations can create unwanted problems down the road for all involved.
It is also imperative that agents document everything. Leaving a paper trail of all actions and reasons for those actions can protect the agent in the event of a challenge. Documentation is the best way to protect yourself. Agents should avoid comingling of funds—at all costs. Their finances should be kept separate from those of the principal.
By now, you might be wondering if you can do the job. If you question whether you are suited to be an agent or are unclear about what is expected of you, talk to the principal. They had a reason for appointing you. And after having that conversation, if you feel the responsibility is too much, then graciously bow out. There is no shame in admitting you cannot or choose not to take on such a responsibility. Better that than find yourself in hot water later.
Francine D. Ward
Attorney-At-Law, Author, Speaker
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