Powers of Attorney are common but often misunderstood estate documents in New Jersey and other states. A power of attorney is a legal document. When you sign a power of attorney, you appoint another person to serve as your agent (or “attorney-in-fact”). Legally, there are many duties and responsibilities imposed on an agent under a power of attorney. Here’s a primer on the the responsibilities imposed on agents under state law.
What are the responsibilities of an attorney-in-fact?
If you have been appointed to represent the “principal” as agent under a power of attorney, the agent is a fiduciary. A fiduciary is anyone named to make decisions for someone else A power of attorney that gives the agent legal authority to make financial decisions about the principal’s money or property is called a durable financial power of attorney. Under a durable financial power of attorney, the agent steps into the principal’s shoes to take whatever investment and spending measures the principal would take him/herself. Unless limitations have been placed in the power of attorney itself, an agent can open bank accounts, withdraw funds from bank accounts, trade stock, pay bills, cash checks. The principal could also make a health care power of attorney if the principal names someone to make decisions about his/her health care. All decisions made by an agent under a power of attorney must be consistent with the agent’s role as a “fiduciary.”
What does it mean to be a “fiduciary”?
As a fiduciary, the law requires the agent under a durable financial power of attorney to manage the principal’s money and property for the principal’s benefit, not the agent’s. An agent is held to the highest standards of good faith, fair dealing and undivided loyalty with respect to the principal. You must always act in the principal’s best interest and keep his goals and wishes in mind in making any decision. Simply stated, when you act as a fiduciary, you have four basic duties:
- Act only in the principal’s best interest.
- Manage the principal’s money and property carefully.
- Keep the principal’s money and property separate from yours.
- Keep good records.
Can I be held liable for my actions as attorney-in-fact?
As an attorney-in-fact, an agent must be trustworthy, honest, and act in good faith. If an agent does not meet these standards, the agent could be removed as a fiduciary, sued, or directed to repay money. It is even possible that the police or sheriff could investigate and the agent could go to jail. However, if the agent does his/her best and keeps the principal’s interests in mind as the basis of the agent’s actions, the agent will not incur any liability
When does the power of attorney take effect?
A durable financial power of attorney takes effect as soon as it is signed by the principal. In most cases, however, even when the power of attorney is immediately effective, the principal does not intend that the agent use it unless he/she becomes incapacitated. You should discuss this with the principal so that you know and can carry out his/her wishes. A “springing” power of attorney takes effect only after the principal becomes incapacitated as certified by one or more physicians. Even after the principal signs a power of attorney, the principal can still manage his/her money and property his/herself as long as he or she is still competent to make decisions.
What if the principal appoints more than one attorney-in-fact?
If you are appointed along with one or more other agents, in most cases the co-agents are appointed “severally,” meaning that they can each act independently of each another. The power of attorney document or state law will say whether you and any co-agents can make decisions alone or if you must agree on decisions, either unanimously or by majority rule. Even if co-agents don’t have to agree on all decisions, you cannot let a co-agent do something that harms the principal. You are still responsible for the principal and must act in his/her best interest.
Can I be fired?
The principal may take away, or revoke, the agent’s authority under a power of attorney at any time. All the principal must do is send a letter to the agent revoking the power of attorney. If the principal revokes your authority, your responsibilities as agent end. In addition, your authority ends when the principal dies.
What kind of records should I keep as attorney-in-fact?
It is very important that you keep good records of your actions as agent under the power of attorney. That is the best way to be able to answer any questions anyone may raise. The most important rule to keep in mind is not to commingle the funds you are managing with your own money. Practice the following good record-keeping habits:
- Run all the principal’s funds through a separate checking account.
- Keep a detailed list of everything that you receive or spend.
- Keep receipts and notes, even for small expenses.
- Avoid paying in cash.
Can I be compensated for my work at attorney-in-fact?
The power of attorney or state law may say that you can be paid for acting as agent. If you will be paid, be sure you charge a reasonable fee. It is up to you to keep detailed records as you go along describing all the work you did, how much time it took, when you did it, and why you did it. In New Jersey, state law provides that an agent under a power of attorney will be paid a statutory “commission” based on the value of the principal’s estate and the income earned on investments.
Too often clients get appointed to roles as fiduciaries that carry huge responsibilities and they are given little instruction on how to carry out their roles. The Consumer Financial Protection Bureau (CFPB) has published an easy-to-read guide on the duties of an agent under a power of attorney. The CFPB guide can be found here – Help for Agents Under a Power of Attorney
And let us know if you have any questions.
For additional information concerning powers of attorney and estate planning, visit: http://vanarellilaw.com/estate-planning-administration/