Issues in Using a Durable Power of Attorney
SERVING AS A FINANCIAL ATTORNEY-IN-FACT
By Liz Perry, Attorney at Law
When someone asks you to be their financial Power of Attorney, you should feel complimented. It means that the “principal” believes that you, the “attorney-in-fact,” are trustworthy and fair and that you possess good judgment.
However, “after accepting” the compliment, you will realize you have been given a big job without an “operator’s manual.”
The goal of this article is to discuss some of the common questions I run into in my practice from new “attorneys-in-fact.” My best advice, though, is to carefully read the Power of Attorney document. There are many ways a Power of Attorney can be written. What you can do depends on the specific language of the Power of Attorney that appoints you.
Some common questions include the following:
What is a “DURABLE” Power of Attorney?
The majority of Powers of Attorney are “durable.” If a Power of Attorney is not “durable,” then your power to act for the “principal” ENDS if the “principal” becomes mentally incapacitated, rarely what you want to happen. However, if the language in the Power of Attorney says you can act, even if the “principal” is incapacitated, then it is “durable.”
When does your authority start? How do you activate the Power of Attorney?
Some Powers of Attorney take effect immediately. If so, your power to act begins when the “principal” signs the Power of Attorney. However, it is common in Washington for the Power of Attorney to provide you can only start serving as the “attorney-in-fact” when a doctor signs a letter saying that the “principal” can no longer manage his own finances.
What records should you keep?
The number one rule is to keep your funds and assets separate from the “principal’s.” During the time you are serving as “attorney-in-fact” you may be required to explain your actions to make sure everything you do under the Power of Attorney is proper. It is important for you to keep accurate records of all your transactions involving the principal’s assets.
You should use a system similar to the following:
List all money or other assets received on behalf of the principal.
Record payments at the time they are made, including the reason for any disbursement; e.g., food, rent, medical expenses, etc.
|Date||Check No.||Payable to||For||Amount|
How should you sign for the “principal”?
If you need to sign a deed or other document for the principal, it is important to make it clear that you are signing in a representative capacity and not binding yourself personally. A good way to do it is to sign your name and then add right after your name, “as attorney-in-fact for _________________.”
Name of principal
What can you do as Power of Attorney?
It is important to read the Power of Attorney document to see what authority it gives you as “attorney-in-fact.” Often it will have broad language that gives you all powers that the principal has” to manage the principal’s financial affairs. If that is the case, then among other powers, you have the authority to buy and sell things for the principal, invest the principal’s money, cash the principal’s checks, and pay the principal’s bills, etc.
What can’t you do as Power of Attorney?
Even when the Power of Attorney document says you have all powers that the ‘principal’ has, there can be things you may not do. Among the things you may not do UNLESS the Power of Attorney specifically gives you the authority to do so are are:
- Make gifts of the principal’s money or other property;
- Make or revoke a community property agreement; or
- Change beneficiaries on life insurance, bank accounts, IRAs, etc.
Even if the Power of Attorney language does give you such powers, it would be safer for you to consult with an attorney to make sure you understand the legal consequences and limitations on your authority since you can have liability if you misstep. One thing you cannot do – no matter what the Power of Attorney document says – is change the principal’s Will.
What do you do if the principal (often your parent) believes he or she has capacity when you and the doctor believe they do not?
In the majority of situations, if your parent is failing mentally, the loss of understanding happens over a length of time and there is a natural transition where it becomes a relief to your parent to have you take over the burden of paying their bills and managing their finances. But, of course, that is not always the case. When you and your parent strongly disagree as to your parent’s ability to manage his or her affairs, you may need to turn to the court system for a judge’s decision which may include having to petition the court for a guardianship.
When your parents or other family members ask you to serve as their “attorney-in-fact,” they are expressing their belief in your honesty, good sense and concern for their welfare. There is no greater compliment they can give you. But with that honor, comes a lot of responsibility and some risk. If you do not become familiar with the law, act within the limits of your legal authority and keep good records, you may find yourself being sued by your principal’s heirs or pursued criminally by the state. The safest thing to do before you start serving as “attorney-in-fact”, especially if you plan on doing more than just paying the principal’s normal monthly bills, is to review the limits on your legal authority with a knowledgeable elder law attorney who will review the potential pitfalls with you.
Elizabeth A. Perry, a member of the National Academy of Elder Law Attorneys, has been helping Clark County residents with their estate planning needs for over 20 years. Her practice emphasizes wills, trusts, probate and Medicaid planning. You are invited to call her to schedule an appointment or sign up for a class at (360) 816-2485. ©Liz Perry 2015
(The above should not be construed as specific legal advice and is intended for general information purposes only)
Issues in Using a Durable Power of Attorney in WA