A financial power of attorney (POA) is a document in which the “principal” appoints a trusted someone known as the “attorney-in-fact” or “agent” to act on behalf of the principal, especially 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. In effect, the agent steps into the shoes of the principal and is able to act for him or her in all matters, as described in the POA document.
Kiplinger’s recent article entitled “What Are the Duties for Financial Powers of Attorney?” points out that 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:
- Start by reading the document. Review the POA document to determine precisely what the principal has given you power to do on their behalf. A POA typically includes information addressed to the agent that explains the legal duties he or she owes to the principal.
- See what you have to handle for the principal. Ask for a list of the principal’s assets and liabilities. If the principle is organized, it’ll be easy. If not, you will want to find about their brokerage and bank accounts, 401(k)s/IRAs/403(b)s, the mortgage, taxes, insurance and other monthly or recurring bills (like utilities, phone, cable and internet).
- Protect the principal’s property. Be sure the principal’s home is secure. It’s often helpful to make a video to inventory the home. If it looks like the principal will be incapacitated for an extended period of time, you may cancel the phone and newspaper subscriptions. 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 any assets you don’t know how to handle.
- Pay all bills, as necessary. Review the principal’s bills and credit card statements, as you would your own, for potential fraud. Note that they may have bills automatically paid by credit card and plan accordingly.
- Pay taxes. Many powers of attorney give the agent the power to pay the principal’s taxes and deal with the IRS. If so, you’ll be responsible for filing and paying taxes on behalf of the principal. If the principal passes away, the executor or personal representative 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.
Finally, it’s important to know that your powers and obligations as the principal’s agent end when the principal passes away. At that point, all powers conferred under the POA are extinguished and the person named as executor or personal representative in the principal’s will take over all duties.
Reference: Kiplinger (April 22, 2020) “What Are the Duties for Financial Powers of Attorney?”