A financial power of attorney (POA) is a document whereby the “principal” appoints a trusted someone known as the “attorney-in-fact” or “agent” to act on behalf of the principal only when the principal is incapacitated. It typically permits the attorney-in-fact to pay the principal’s bills, access his accounts, pay his taxes and buy and sell investments or even real estate depending on how well the document was prepared. In effect, the attorney-in-fact steps into the shoes of the principal and is able to act for him in all matters, as described in the POA document.
Kiplinger’s recent article entitled “What Are the Duties for Financial Powers of Attorney?” says these responsibilities may sound overwhelming and it’s only natural to feel this way initially. Let’s look at the steps to take to do this important job:
- Don’t panic but begin reading. Review the POA document and determine what the principal has given you power to do on his behalf. A POA will typically include information addressed to the agent that explains the legal duties he or she owes to the principal. It would be wise to contact the estate planning attorney who prepared the document. Chances are the attorney knows more about the individuals assets than you do.
- See what you have to handle for the principal. Create a list of the principal’s assets and liabilities. If the principle is organized, it’ll be easy. If not, you will need to find their brokerage and bank accounts, 401(k)s/IRAs/403(b)s, the mortgage, taxes, insurance and other bills (utilities, phone, cable and internet).
- Protect the principal’s property. Be sure the principal’s home is secure and make a video inventory of the home. If it looks like your principal will be incapacitated for an extended period of time, you may cancel the phone and newspaper subscriptions. You may need to change the locks on the principal’s home. If you have control of the principal’s investments and their incapacitation may continue for a long time, review their brokerage statements for high-risk positions that you don’t understand, like options, puts and calls, or commodities. Get advice on liquidating positions you don’t have the know-how to handle.
- Pay all bills, as necessary. Look at your principal’s bills and credit card statements for potential fraud. Perhaps you should suspend their credit cards that you won’t be using on the principal’s behalf. Note that they may have bills automatically paid by credit card and plan accordingly.
- Pay the taxes. Many powers of attorney give the agent the power to pay the principal’s taxes. If so, you’ll be responsible for filing and paying taxes during the principal’s lifetime. If the principal passes away, the executor of the principal’s last will is responsible for preparing any final taxes.
- Keep meticulous records. Track every expenditure you make and every action you take on the principal’s behalf. You’ll be asked to demonstrate that you have upheld your duties and acted in the principal’s best interests. It will also be important for you to receive reimbursement for expenses, and (if the power of attorney provides for it) the time you spent acting as agent.
Chances are, you will need to contact the principal’s estate planning attorney to discuss the situation at hand to make sure everything is in order as you must always act in the principal’s best interest.
Reference: Kiplinger (April 22, 2020) “What Are the Duties for Financial Powers of Attorney?”