by DeEtte L. Loeffler, J.D., L.LM
Have you agreed to be an agent under a financial power of attorney for someone else? If so, do you understand all of your legal responsibilities under this document?
As an agent, you have agreed to act on behalf of the “principal” (the individual who appointed you) to bind that person in financial transactions. In other words, you have agreed to act as that person for all financial purposes. If you sign a contract (or waive a right) in the future, the principal is legally responsible for that decision.
Your authority to act may be immediately effective or may be delayed until a future event (usually the incapacity of the principal). You may also be named as a “successor” agent. A successor agent does not have any power (or duty) to act for the principal until the person or persons named to act before you have resigned.
Under a power of attorney, you have five major and one special duty. First, you must act solely on behalf of that principal. For example, if you are appointed as agent to sell the principal’s home, you cannot also act on behalf of a proposed buyer of the house and disclose to that prospective buyer any confidential information you receive from the seller (such as a lowest acceptable offer).
Second, you must only act within the “scope” of your appointment as set forth in the written appointment. If you are appointed solely to sell the principal’s car, you cannot also buy a new car for him or her with the sales proceeds or swap the car for some asset other than cash.
Third, you must use appropriate care and diligence in exercising powers on behalf of the principal. If you agree to pursue a claim against a third party, you should act quickly to secure legal representation and to file the appropriate claim in a timely manner so that the claim is not lost. You also should not abandon the claim without the knowledge and approval of the principal.
Fourth, as an agent, you are a “fiduciary”, meaning that you must avoid conflicts of interest and act in the best interests of the principal. For example, you must not engage in “self-dealing” (where you benefit from the exercise of your powers, such as where you buy the principal’s car for your child at a “sweetheart” price).
Acting as a fiduciary is not always as clear cut as it sounds. For example, assume John was appointed as financial agent for his mother who is now incapacitated and needs full-time care. He knows his mother wanted to remain in her home until her death, but the cost of home-based care is higher than if she moved into a care facility. What should John do? Clearly, it depends. As agent, John must set aside his own interests as a remainder beneficiary to analyze whether it is appropriate to provide home care for his mother (as she wished) or to move her and, by doing so, extend the period over which benefits can be provided to her (i.e., so she does not run out of money before her death).
Fifth, the agent is obligated to protect and preserve the assets as well as promptly deliver to the principal all money and assets collected on principal's behalf.
Finally, if the power of attorney allows you signature authority over bank accounts, investment accounts, or a foreign trust, Congress has added an additional duty to this list. Under the federal Bank Secrecy Act, any person with signature authority over (not just ownership in) a foreign bank account, brokerage account, mutual fund, trust or other type of foreign financial account (exceeding certain thresholds) may be required to report that account to the IRS each year by filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (also known as an FBAR report). If you are an agent under a general power of attorney, you should confirm on an annual basis if the principal has such foreign accounts. Failure to file the FBAR can result in significant financial penalties. However, certain changes to a power of attorney may be included to limit the duties of the agent and avoid triggering the FBAR reporting obligation.
You also have rights as an agent. You cannot be required to act for another person without your consent. Your appointment as agent does not necessarily mean you must act on behalf of the principal. Your consent, however, may be implied if you take any actions using the powers. If you disagree with what the principal wants you to do or you are unable (or do not want) to act as agent, you can decline to serve or, if serving, you may resign. Generally, a written declination to a serve or a written resignation is required so that the next named agent under the power of attorney may act.
The principal also owes certain duties of care toward you. The principal should compensate you (if this is your agreement) and should indemnify you, as the agent, against all claims, liabilities, and expenses you incur while acting on behalf of the principal and within the scope of your authority. For example, if the agent is sued for selling a car with a cracked engine block and the principal knew about this issue without disclosing it to the agent, indemnification is appropriate. However, if the agent knew of the problem and actively disguised it from the buyer, indemnification is not appropriate.
If you have been appointed to act as agent under a power of attorney or you have appointed someone else to act on your behalf and have questions about your duties and rights under this arrangement, we recommend you contact a qualified attorney to discuss them.