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A Service: Power of attorney requires diligence, responsibility
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Published: November 16, 2008
Updated: 11/15/2008 11:10 pm
One of the most important estate- and financial-planning documents that attorneys and other professionals recommend is a durable, or financial, power of attorney. This document allows you to give another person (generally called an agent, or attorney-in-fact) the ability to act on your behalf concerning various financial and business issues.
Here is what you are being asked to do when a friend or loved one asks you to serve as his or her attorney-in-fact.
□ What are your duties? The person you have been asked to help is called the "principal." You step into the shoes of that principal and take whatever measures the principal would take himself, unless limitations have been placed in the power of attorney. Generally, you can open bank accounts, withdraw money from bank accounts, trade stocks, pay bills and cash checks, among other things.
The power of attorney that appoints you should be recorded at the courthouse. All steps you take must be consistent with your role as a "fiduciary."
□ What does it mean to be a "fiduciary"? You are held to a standard of good faith, fair dealing, and undivided loyalty with respect to the principal. You must always act in his best interest and keep his goals and wishes in mind making any discretionary decision.
□ Can you be held liable for your actions as attorney-in-fact? Yes, but generally only if you are guilty of willful misconduct (taking property for yourself, for example) or gross negligence. If you do your best and keep the principal's interests in mind as the basis of your actions, you generally should not incur any liability.
□ When does the power of attorney take effect? It depends on the terms of the document, but generally the power of attorney takes effect as soon as it is signed by the principal. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used unless he becomes incapacitated. You should discuss this with the principal ahead of time.
□ Can you be fired? The principal, if competent, may revoke the power of attorney at any time. He may send you a letter to this effect. He also can record a revocation of the power of attorney at the courthouse.
□ What kind of records should you keep? It is very important that you keep good records of your actions under the power of attorney. That is the best way to be able to answer any questions that anyone may raise. The most important rule to keep in mind is not to commingle (mix) the funds you are managing with your own money. Keep the accounts separate. The easiest way to keep records is to run all money through a separate checking account. The checks will act as receipts and the checkbook register as a running account.
□ Can you be compensated for your work as attorney-in-fact? Yes, if the principal has agreed to pay you. In general, the attorney-in-fact is entitled to "reasonable" compensation for his services. However, in most cases, the attorney-in-fact is a family member and does not expect to get paid. If you would like to be paid, it is best that you discuss this with the principal, agree on a reasonable rate of payment, and put that agreement in writing. That is the best way to avoid misunderstandings in the future.
One of the most important ways you can help an older member of your family is to agree to serve as an attorney-in-fact.
■ Mike Wells is the senior partner of Wells Jenkins Lucas & Jenkins law firm in Winston-Salem.
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