We’ve discussed the planning side of a power of attorney before, but what if someone (we’ll call this someone the “principal”) appoints you to serve as their attorney-in-fact in a power of attorney?
First of all, congratulations! I’m not kidding! Someone has enough trust in you to appoint you to handle their affairs. I think that’s a real honor, and I encourage you to view it the same way. Of course, with an honor like that, you’ll want to do a good job. For this post, I’m really focusing on the financial power of attorney rather than a power of attorney for healthcare decisions, because the financial powers are where much of the danger is in powers of attorney.
So how do you do the best job possible? Let’s go through some keys:
First, do you have copies of the power of attorney?
When you start acting on behalf of the principal, you’re going to need to have some proof that you have the power to act. At a minimum, the principal should tell you where to find copies of the power of attorney.
Second, do you have the power to do anything?
Powers of attorney can take effect immediately, but it is relatively common for powers of attorney to wait until one of more doctors have determined that the principal is incapacitated before taking effect. Make sure you know whether or not you have the power to act before you start doing things.
If you haven’t done so already, read the power of attorney! I know they’re not that much fun to read, but you should understand what you can and cannot do before you do anything.
Don’t forget that certain events terminate a power of attorney. First, the principal can revoke the power of attorney. Second, if the principal becomes incapacitated, a power of attorney that is not durable (here’s the sample language that makes a power of attorney durable) is not effective during the incapacity. Third, even if the power of attorney is durable, it terminates when the principal dies.
Third, are you upholding your duties?
At the risk of sounding a lot like Spider-Man, when you are given the power to act under a power of attorney, you have a responsibility to act in the best interests of the principal.
Specifically, Missouri law requires that you:
- Act in the principal’s best interest.
- Avoid conflicts of interest that affect your ability to act in the principal’s best interest.
- Avoid “self-dealing,” where you use your powers for your own advantage rather than for the principal.
- Leave the principal’s estate plan alone, unless you have explicit authorization to modify it.
- Discharge your duties with the “degree of care that would be observed by a prudent person dealing with the property and conducting the affairs of another.”
- Make investments in keeping with the standards set forth in Missouri’s Prudent Investor Act.
- Use any relevant special skills or expertise you might have on the principal’s behalf.
- Communicate with the principal, at least as much as possible under the circumstances.
Quite a list, isn’t it? It’s critical to remember that when you are acting on the principal’s behalf, you’ve got to do so in order to advance the principal’s best interests. Ideally, your interests and the principal’s won’t clash (and you should try to minimize those conflicts if you can), but if they ever do, the principal’s interests have to win.
Fourth, are you keeping good records?
Even when you’re managing both your property and the principal’s property, you must keep them separate! Do not combine your property (especially cash) and the principal’s. It would be easy to accidentally commit an act of self-dealing under those circumstances, and that would violate your duties. Not good.
Keeping good records is vitally important. Just as you keep your own financial records so that you can keep track of how you’re doing financially, you also need to do that recordkeeping for the principal. Unless it is explicitly waived in the power of attorney, the principal can ask the court to require you to account for your management of the principal’s property. Good records will be vital then. If the principal is incapacitated, disabled, or dead, that does not mean an accounting can’t be done; in that case, the “principal’s legal representative, an adult member of the principal’s family or any person interested in the welfare of the principal” could petition instead.
And even if the principal does waive the accounting, it’s still a good practice to keep good records. Not only does it benefit the principal (and anyone who might later go on to handle the principal’s estate), but it also benefits you as the agent. After all, if your records are meticulous, you’re less likely to make errors that might be viewed as self-dealing or mismanagement, and it’s easy to fend off accusations of wrongdoing.
The keys to success
I don’t say all this to scare you, but you should know that this is an important job. You’ll have the best chance to be a great agent if you:
- Keep the principal’s best interests at heart
- Take actions that benefit the principal, even if they don’t benefit you
- Maintain great records
- Understand what you can and cannot do
- Can show that you have authority to act
When you serve as an agent, the principal is counting on you; do your very best to honor the trust they’ve placed in you.
Photo credit: flickr user karl sinfield, https://www.flickr.com/photos/sindesign/238419364/, licensed under https://creativecommons.org/licenses/by-sa/2.0/