By Justin Curtiss, J.D., CFP®
SERVING AS A FINANCIAL ATTORNEY-IN-FACT
When someone asks you to be their financial Power of Attorney, you should feel complimented. It means that person, the “principal” believes you, the now appointed “attorney-in-fact,” are trustworthy and fair and that you possess good judgment. However, after accepting the compliment, you will realize you have been given a big job without an “operator’s manual.”
The goal of this article is to discuss some of the common questions from new attorneys-in-fact. My best advice, though, is to carefully read the Power of Attorney document. There are many ways a Power of Attorney can be written. What you can do depends on the specific language of the Power of Attorney that appoints you.
Some Common Questions Include the Following:
What is a “Durable” Power of Attorney?
The majority of Powers of Attorney are durable. If a Power of Attorney is not durable, then your power to act for the principal ends if the principal becomes mentally incapacitated, rarely what you want to happen. However, if the language in the Power of Attorney says you can act, even if the principal is incapacitated, then it is durable.
When does your Authority Start? How do you Activate the Power of Attorney?
Some Powers of Attorney take effect immediately. If so, your power to act begins when the principal signs the Power of Attorney. However, it is common in Washington for the Power of Attorney to provide that you can only start serving as the attorney-in-fact when a doctor signs a letter saying that the principal can no longer manage his own finances.
What Records Should You Keep?
The number one rule is to keep your funds and assets separate from the principal’s. During the time you are serving as attorney-in-fact, you may be required to explain your actions to make sure everything you do under the Power of Attorney is proper. It is important for you to keep accurate records of all your transactions involving the principal’s assets.
You Should use a System Similar to the Following:
List all money or other assets received on behalf of the principal.
Record payments at the time they are made, including the reason for any disbursement; e.g., food, rent, medical expenses, etc.
DateCheck No.Payable toForAmount
|Date||Check No.||Payable to||For||Amount|
If you need to sign a deed or other document for the principal, it is important to make it clear that you are signing in a representative capacity, and not binding yourself personally. A good way to do this is to sign your name and then right after your name add: “as attorney-in-fact for name of principal.”
What can you do as Power of Attorney?
It is important to read the Power of Attorney document to see what authority it gives you as attorney-in-fact. Often it will have broad language that gives you all powers that the principal has to manage the principal’s financial affairs. If that is the case, then you have the authority to buy and sell things for the principal, invest the principal’s money, cash the principal’s checks, and pay the principal’s bills, etc. As the attorney-in-fact, you are often granted the authority to hire professional assistance in investing the principal’s assets. If you are serving as attorney-in-fact and need assistance, we can help you with managing the assets of the principal.
What can’t you do as Power of Attorney?
Even when the Power of Attorney document says you have all powers that the principal has, there can be things you may not do. Among the things you may not do, UNLESS the Power of Attorney specifically gives you the authority to do so, are:
- Make gifts of the principal’s money or other property;
- Make or revoke a community property agreement; or
- Change beneficiaries on life insurance, bank accounts, IRAs, etc.
Even if the Power of Attorney language does give you such powers, it would be safer for you to consult with an attorney to make sure you understand the legal consequences and limitations on your authority since you are liable if you misstep. Additionally, one thing you cannot do – no matter what the Power of Attorney document says – is change the principal’s Will.
What do you do if the Principal (Often your Parent) Believes He or She has Capacity When you and the Doctor Believe They Do Not?
In the majority of situations, if your parent is failing mentally, the loss of understanding happens over a length of time. Generally, there is a natural transition where it becomes a relief to your parent to have you take over the burden of paying their bills and managing their finances. Of course, that is not always the case. When you and your parent strongly disagree as to your parent’s ability to manage his or her affairs, you may need to turn to the court system for a judge’s decision, which may include having to petition the court for a guardianship.
When your parents or other family members ask you to serve as their attorney-in-fact, they are expressing their belief in your honesty, good sense and concern for their welfare. There is no greater compliment they can give you. But with that honor, comes a lot of responsibility and some risk. If you do not become familiar with the law, act within the limits of your legal authority, and keep good records, you may find yourself being sued by your principal’s heirs or pursued criminally by the state. The best thing you can do before you start serving as attorney-in-fact, especially if you plan on doing more than just paying the principal’s normal monthly bills, is to review the limitations on your legal authority with a knowledgeable attorney who will review the potential pitfalls with you.
This material is intended to provide general financial education and reflects the personal opinions, viewpoints, and analysis of Sustainable Wealth Management, Inc.’s employees and is not written or intended as investment, tax or legal advice and may not be relied upon for purposes of avoiding any Federal tax penalties. The views reflected in the commentary are subject to change at any time without notice. Nothing on this blog post constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Sustainable Wealth Management, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Investment advisory services offered through Sustainable Wealth Management, Inc. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Sustainable Wealth Management are not affiliated companies.