Your loved one has entrusted you with power of attorney responsibilities, giving you the legal right to handle their finances, including taxes, bills and real estate transactions, if they are unable to do so. It’s a big obligation — and one that comes with specific rules and requirements. Here’s how to navigate being named someone’s power of attorney.
What Is a Power of Attorney?
A power of attorney (POA) is a legal document in which one person (known as the principal) gives another person (known as the agent or attorney-in-fact) authority to act on behalf of the principal. A power of attorney can be very broad, allowing the agent to perform a variety of tasks — such as selling property, managing bank accounts and applying for benefits — or it can be more limited and restrict the agent to one or more specific tasks. It’s possible to be named agent or attorney-in-fact and not have any immediate power of attorney responsibilities, only taking on these duties if something happens to the principal. As an agent, you have fiduciary duties, which means that you must:
- Act only in the best interest of the principal.
- Involve the principal in decision making, if possible.
- Manage all assets carefully and respect the principal’s wishes.
- Act only within the scope of authority granted by the power of attorney document and comply with its terms.
Five Things to Do When You’ve Been Granted Power of Attorney Responsibilities
Being granted financial POA responsibilities can feel daunting, but following these basic steps can help you handle the obligation well.
Understand Where Your Responsibilities Begin and End
Your specific duties should be spelled out in the legal documents. A financial power of attorney is most often responsible for financial management and would have access to the principal’s bank accounts, safe deposit boxes and estate documents. A power of attorney could make decisions about purchasing insurance, acquiring government benefits and filing tax returns. There are three types of financial power of attorney:
You can act on behalf of the principal in any matters as allowed by state laws.
You can act on behalf of the principal in specific matters or within a specific time frame. For example, power of attorney limits might include making decisions about only the principal’s retirement funds or managing their investments only while they are overseas.
You can act on behalf of the principal in specific financial, legal or property matters as spelled out in the agreement, even after they are no longer able to make decisions on their own.
Avoid Conflicts of Interest
A financial power of attorney must make decisions in the best interests of the principal, which means acting in accordance with their expectations, acting in good faith and limiting your role to the scope of the responsibilities you were granted. A person who acts under a power of attorney is a fiduciary, or someone who is responsible for managing another person’s affairs. The fiduciary has a duty to act prudently and in a way that is fair to the person whose affairs he or she is managing. The agent cannot use the principal's assets in a way that is against the principal's wishes. Someone who violates those duties can face criminal charges or can be held liable in a civil lawsuit.
Conflicts of interest could include:
- Transferring assets to your name
- Borrowing or lending money
- Making changes to their estate
Sign on the Dotted Line
The only person legally authorized to sign for your loved one is the named power of attorney — in this case, you. When it comes time to sign documents on behalf of them, remember to sign as their agent. It needs to be clear that you are acting as power of attorney, which could mean signing in a specific format. Examples of how to sign include:
- Jane Smith under POA for John Jones
- John Jones, by Jane Smith, agent
- John Jones, by Jane Smith, attorney in fact
- John Jones, by Jane Smith, POA
- John Jones, by Jane Smith, power of attorney
Ask about any preferred format for your signature before signing — and remember to bring your power of attorney documents when conducting transactions in this role.
Keep Careful Records
You’ll need to document all financial transactions, including receipts of bills paid, income collected and assets sold or traded. Maintaining a paper trail reduces your liability. Keeping records is especially important if you are claiming compensation for taking on the role. You’ll need to document how much you were paid and justification for the compensation. For example, if you made a 50-mile round trip to conduct a transaction, you’ll need to document the mileage, save gas receipts and document the standard IRS mileage rate.
Ask for Help
If you’re unsure about your financial power of attorney responsibilities or need guidance in carrying out your fiduciary duties, call a professional. The lawyer who created the power of attorney is a good place to start. Your job is to protect your loved one’s best interest while protecting yourself from liability.
We Can Help
Farm Bureau agents can help you make important financial decisions at all stages of life. Contact an agent or financial advisor today.