You may have signed a Financial Power of Attorney as part of your estate plan, but do you really understand what it is and what power you have given your agent?
A financial power of attorney authorizes another person, your “agent,” to make decisions for you concerning your property. Your “property” means any of your bank accounts, investment accounts, insurance, retirement accounts, real estate, etc. Your power of attorney is typically, but not always, effective immediately. This means your agent will be able to make decisions and act with regard to your property whether or not you are able to act for yourself. That may in fact be just what you want, but if it’s not, you should be discussing this with your attorney.
A power of attorney does not authorize your agent to make health care decisions for you. The appointment of your health care agent is done in a separate Durable Power of Attorney for Health Care.
This may seem obvious, but you should select someone you trust as your agent. If you have any doubts that your agent would not act in your best interest, do not choose that person. A power of attorney is a very powerful document and you want to not only name the correct person, but perhaps build in some safeguards as well. And I believe it is advisable to always name an alternate person, in case your first choice becomes unwilling or unable to serve as your agent. Further, you can incorporate some protections in your power of attorney, which you may consider particularly if you are giving your agent the broadest of powers. Those protections may include naming co-agents who must act together, possible use of monitors or requiring some reporting to one or more persons of actions taken.
The general authority that you grant to an agent includes powers such as dealing with real estate, tangible personal property, stocks and bonds, commodities and options, banks and other financial institutions, operating a company or business, insurance and annuities, estates and trusts, claims and litigation, personal and family maintenance, governmental and veterans benefits, retirement plans and taxes.
You do have the ability, however, to authorize your agent to do other things, but only if you have expressly given your agent that authority in the document. Those actions are: (1) create a trust; (2) amend, revoke or terminate a trust; (3) make a gift; (4) create or change rights of survivorship; (5) create or change a beneficiary designation; (6) delegate authority under a power of attorney; (7) waive the principal’s (that’s you) right to be a beneficiary of a joint and survivor annuity or a survivor of a retirement plan; and (8) exercise fiduciary powers that the principal has authority to delegate. By reading this list, you can see that these powers are extraordinary and could give your agent the authority to take actions that could significantly reduce your property or change your ultimate estate plan as to distribution of your property at your death. However, it may be that you have created an estate plan to ultimately qualify you for some government benefits which makes taking some or all of these actions necessary, and you are giving someone the authority to complete your plan in the event you would become unable to complete it yourself. The granting of any of these powers should only be done after consultation with your attorney. On some occasions, the granting of these “special powers” is done in a completely separate power of attorney document
If you are serving as an agent under a power of attorney, you should be aware of what your duties are. You have a special legal relationship with the principal, i.e., the person who has named you as agent. You must do what you know the principal reasonably expects you to do with his property and act in the principal’s best interest. You must act in good faith and not take actions beyond the authority given you in the power of attorney. You should attempt to preserve the principal’s estate plan if you know the plan (and you probably should). When you act under the power of attorney you should disclose your identity by signing the principal’s name and your own name as agent. You should avoid conflicts with your own interests, and act with care, competence and diligence. It is critically important that you keep a record of all receipts, disbursements and transactions made on behalf of the principal.
You should be aware when your authority terminates. That will happen upon the death of the principal, if the power of attorney is revoked, if there is a termination event within the document and that has occurred, the purpose of the power of attorney is accomplished (which may occur if this is a limited power of attorney) or if you are married to the principal and a legal action has been filed to end your marriage or you become legally separated.
Signing a power of attorney is most often a critical part of your estate plan. However, it is one of those documents that you should discuss thoroughly with your estate planning attorney. It is not one that I would advise you prepare yourself or get online. It is too important and potentially too powerful to create without advice.
Marie Mirro Edmonds
March 14, 2016