And stay out of trouble!
More and more agents are being asked to account for their actions and more and more litigaiton is aimed at agents who abuse their powers, especially by making gifts to themseles. Learn how to do it right and stay out of trouble.
When you agree to serve as attorney-in-fact under a Power of Attorney you become the Agent of the Principal. A Power of Attorney is a grant of authority. It authorizes and permits an Agent to act but does not require the agent to act. The Agent is not obligated to serve. However, an Agent may have a moral or other obligation to take on the responsibilities of agent, especially if the Principal was relying on him or her to do so. Once an Agent begins to act, he or she has a duty to act prudently. An Agent is held to the highest standards of good faith, fair dealing, and loyalty with respect to the principal. The Agent must always act in the best interest of the principal.
That fact that the Principal has named you as her agent does not mean that the Principal cannot act for herself. So long as the Principal is competent, he or she can do anything, including undoing something you may have done as Agent. Obviously, communication with the Principal is key. As long as the Principal is competent, his or her Power of Attorney can be revoked by written notice to you.
What should you do and not do when you are acting as an Agent?
1. Read the Power of Attorney in which you are appointed as agent. Not all Powers of
Attorney are alike. Some are General Powers of Attorney and grant full powers to do anything the Principal could do with regard to financial matters. Others are limited to specific actions. You can only do the things the document authorizes you to do. A Power of Attorney is not a license to take over the Principal's affairs and do things your way. As an Agent it is your duty to carry out the instructions and wishes of the Principal.
2. Sign the Power of Attorney, if required. For Powers of Attorney executed after April 11,
2000, the Agent must sign an oath in which he or she promises to fulfill his or her duties before the Agent can use the power.
3. Make several copies of the original Power of Attorney. Give a copy to each entity with
which you transact business on behalf of the Principal. Banks, brokerage houses, mutual funds, and insurance companies, sometimes insist that you use their own in-house Power of Attorney forms. Find out what forms these institutions require. Have your Principal sign these forms while he or she is still able.
4. Make a complete inventory or list of all of the Principal's assets and income sources.
You need to do this so that you know what you are responsible for, what resources are available, and so that you can keep property such as real estate and motor vehicles properly insured. If you have many assets to manage, consider a custodial account with a financial institution. As Agent, you are responsible for keeping the assets safe.
5. Sign as Agent. When signing documents as an agent, always make clear that you are signing on behalf of the principal. Sign your name and follow it with at least ", Agent" or better, the phrase, "as agent for _____________." Complete the phrase with the name of the principal. If you sign correctly, you will avoid personal liability. The exact wording is not important. Just make sure you indicate that you are signing oh behalf of your Principal, not for yourself. If you sign your name with no indication of your capacity as Agent for another you may be personally responsible.
6. Separation. Always keep the Principal's assets separate from your own. Do not
7. Keep good records of all your Principal's assets and income and all of your actions as
Agent. Keep copies of all statements and all transactions. Use a single checking account. The checks will act as receipts and the checkbook register as a running record of your expenditures.
8. Possible duties. In the course of managing the Principal's financial affairs, the Agent
may need to do any one or more of the following: pay the everyday expenses of the Principal and his or her family; buy, sell, maintain, pay taxes on, and mortgage real estate and other property; apply for and collect government benefits including Social Security, Medicare, Medical Assistance, or other government benefits, invest in stocks, bonds, and mutual funds; handle banking transactions; buy and sell insurance policies; file and pay the Principal's income taxes; operate a business; claim inheritances; transfer property to a trust the Principal created; handle litigation in which the Principal is a party; manage the Principal's retirement accounts.
9. Borrowing and Selling. You may not use the Principal's assets for yourself. Unless the
Power of Attorney document specifically says so, you may not borrow money from the Principal even if you are paying it back at the same or a higher interest rate you would pay a bank. You should not sell any of the Principal's property to yourself, your friends, or your relatives even at a fair price unless the Power of Attorney makes it clear that you can.
10. Gifts. You may make gifts only if the document specifically authorizes gifts. You are to
use the money for the Principal's benefit, and donations and gifts without being specifically authorized are not considered to be for the Principal's benefit. The document may permit limited gifts, that is limited in amount (such as the federal annual exclusion amount) and limited to a particular class of donees.
11. Communicate. Avoid misunderstandings by communicating with the Principal's family
members about how you are managing the principal's affairs.
12. Hire the help you need. An Agent may hire accountants, lawyers, brokers, investment
advisors, or other professionals to help with the agent's duties, but may never delegate his or her responsibility as agent. The reasonable costs of these services are expenses that should be paid from the Principal's assets.
13. Fees. Whether or not the Agent is entitled to a fee for his or her services depends on the
document and the circumstances. In most situations where a family members is the Agent and the Agent's duties are fairly simple, there is no compensation paid to the agent. If, however, the Agent is burdened with substantial responsibilities (such as running a business), payment may be appropriate. If the Principal wants to make sure the Agent is paid, the Powers of Attorney should establish the criteria for payment.
Small articles bought for use exclusively by the Principal such as clothing and toiletries can be paid out of pocket and reimbursed from the principal's funds later. Mutual use expenses, such as for gas and insurance for the Principal's car that the Agent also uses may only be reimbursed to the extent of the Principal's use.
Fees for services such as cleaning the Principal's house and yard, feeding the Principal, or doing the Principal's laundry are legitimate fees, but only if charged at a reasonable and customary rate. Charging twenty five dollars an hour for cleaning house is not reasonable unless you do it for a living for others and normally charge that amount. If you do the taxes for the Principal, running the numbers through a tax program would not entitle you to the same fee charged by a CPA unless you prepare taxes for a living.
Remember, you may have to justify your fees to a judge hour by hour and job by job, and if it appears you overcharged, you may find your fees cut back to minimum wage or eliminated altogether. When in doubt, undercharge and avoid that trip to his honor's woodshed.
14. Prohibitions. There are a few actions that an Agent is prohibited from doing. An Agent
may not sign a document stating that the principal has knowledge of certain facts. For example, if the Principal was a witness to a car accident, the Agent cannot sign an affidavit stating what the Principal saw or heard. An Agent may not vote in a public election on behalf of the Principal. An Agent may not make or revoke a will or codicil for the Principal. If the Principal is a trustee, executor, or other fiduciary the Agent is not permitted to act in those capacities.