Power of attorney
Four basic duties to adhere to.
How does one become an agent under a Power of Attorney? When someone worries that they will end up in a situation rendering them unable to pay bills they will usually have a power of attorney document drawn up naming someone as an agent, since you would be managing someone else’s money you thus become a fiduciary. As a fiduciary you become obligated by law to manage money and property for the benefit of the principal (person who named you), not for your benefit regardless of the amount of money involved.
According to the Consumer Financial Protection Bureau (CFPB)’s guide Managing Someone Else’s Money: Help for agents under a power of attorney, you as a fiduciary have four basic duties:
- Act only in the Principal’s best interest. What does this mean? It means exactly what it says, you as the agent cannot act on what you think is best you must act on what state law allows and what the document says. The document is what the Principal has felt to be in their best interest and as the agent you must respect that regardless of how you may feel and what your best intentions may be. Also, make sure you are aware of when the document becomes effective. Sometimes Power of Attorneys go into effect as soon as they are signed other times it is when the principal can no longer make decisions on their own. Most of all, talk with the principal and have them involved in the decision making process as long as they are able to communicate and like the CFPB publication says a person’s ability to make decisions often times varies and changes from day to day.
- Manage the Principal’s money and property carefully. Yes, you will have to pay bills and take care of the essentials such as basic needs along with paying taxes and taking care of any other outstanding debt. As the agent and according to the CFPB you have to be more careful with the principal’s money than with your own. Make sure to list all assets and debts, secure all money, property and other valuables by any means necessary. If required to make investment decisions speak with a financial advisor and make sure to follow the goals of the principal. Pay all debts on time and cancel any unnecessary debt. Make sure to obtain certified copies of the power of attorney and provide them to businesses so the power of attorney gets accepted.
- Keep the Principal’s money and property separate. Never co-mingle your assets as an agent with the assets of the principal. The principal’s money and property should always be kept in their own accounts and title to properties should always stay in the principal’s name. Make sure to sign all documents properly as the agent and always pay the principal’s expenses with their money not anyone else’s.
- Keep good records. As the saying goes “The devil is in the details.” Make sure to keep a highly detailed record of all money moving in and out of the principal’s accounts. Always pay with check and make sure to get and keep all receipts associated with all transactions made. If you have to use a ledger journal for all expenses. The more detailed you are with transactions the less room for question.
Michigan State University Extension offers financial management and home ownership education classes. For more information of classes in your area, visit MI Money Health. Also visit ConsumerFinance.gov for additional tips and information about power of attorney basics.
You are not required to be an attorney to become someone else’s agent but, you should seek the counsel of a competent estate planning attorney for legal advice to simplify the process. Taking care of someone else’s money is never easy but following the four basic rules above will ease the burden to an extent.