Acting as a Power of Attorney for Others

Most often people name trusted family members or friends to act as their legal power of attorney in the event of illness or an accident. It is important for those named as power of attorney to understand their duties and responsibilities to their principal – the person who granted them the power of attorney over their affairs.

The Consumer Financial Protection Bureau has a clear reference material that can guide the agent in their duties. In summary, it spells out the following:

• A power of attorney is a legal fiduciary. This means the agent must act only in the best interest of their principal, manage assets carefully, not comingle the principal’s assets with those of other people, and keep good records.
• A power of attorney can be revoked. It also is no longer valid once the principal dies.
• The power of attorney document spells out exactly what the agent is to do. If certain powers are not listed, the agent cannot perform those powers.
• The agent should involve the principal in decision making as much as possible.
• The agent should avoid conflicts of interest. For example, the agent shouldn’t buy a car that isn’t totally for the use of the principal.
• The agent should not borrow, loan, or give the principal’s money to themselves or people who are not the principal.
• The agent should not change the principal’s estate wishes unless it is the principal’s best interest and is allowed by the power of attorney document.
• If the power of attorney document and state laws allow an agent to take a fee for acting for the principal, the fee must be reasonable and the agent must document how much time they spend acting for the principal.
• The agent needs to understand the principal’s financial situation and where all assets are located. Assets should be carefully invested based on the principal’s goals and situation.
• The agent should pay all bills on time.
• The agent should keep good records:
  • A detailed list of everything spent for the principal
  • All receipts and notes
  • Avoid using cash if possible
• Watch out for financial exploitation of the principal such as bank withdrawals without explanation, missing property, or if the principal seems afraid of a caregiver or other individual.
• To avoid problems with family or friends, the agent should be as transparent as possible with the agent’s assets.

The Consumer Financial Protection Bureau has a guide for trustees of trusts. The rules are pretty much the same, except the trustee needs to think about the need of the current and successor beneficiaries of the trust.