A durable power of attorney (POA) is an important document in an individual’s personal financial and estate planning arsenal. With a financial durable POA, an individual (the “principal”) authorizes another individual (the “agent,” sometimes called the “attorney-in-fact”) to act on their behalf with respect to legal and financial matters. “Durable” means the authority would continue in the event the principal becomes incapacitated. The scope of authority granted is specified in the POA document and may be limited by some state statutes.

Choosing an agent is an important decision that requires careful consideration. Many people choose a spouse, child or other family member to act on their behalf, but the agent could be someone outside of one’s family, perhaps a trusted advisor. More important, the person selected must have the skills, perspective, judgment, integrity and time to perform a wide range of duties. Further, the agent is a fiduciary, and as such is held to a high standard of care to act in the best interests of the principal. The person chosen to be a financial POA need not be the same person chosen to act as a healthcare POA agent or proxy. This article addresses the role of a financial POA agent.

When the agent’s duties begin

As mentioned earlier, a POA can permit the agent to act for the principal even if the person becomes incapacitated. If a person becomes incapacitated and does not have a durable POA, the matter falls to the court to appoint someone as legal guardian or conservator — generally a time-intensive and costly process.
When the agent’s duties begin will depend on the state in which the POA is drafted and on the exact words of the document. In some instances, the agent may not have immediate authority to act. Instead, a “springing” power would dictate that authority does not become effective unless and until some specific event occurs, for example, the incapacity of the principal. In other instances, the agent may have the authority to act immediately or unconditionally at the time the POA is executed. In either case, the agent needs to clearly understand when his or her authority begins.
Overview of responsibilities

In short, a financial POA agent’s duty is to act on behalf of the principal, in the principal’s best interest, and carry out the principal’s directions and wishes as expressed in the POA and in accordance with applicable law.

In performing these duties, the agent may need to:

• Identify and take possession of the principal’s assets
• Determine the principal’s legal obligations, for example, monthly rental or other payments, and see they are met in a timely fashion
• Contact third parties, such as investment advisors and realtors, if appropriate, to make certain they understand the agent has the authority to act on the principal’s behalf

One of the most important responsibilities may include keeping the principal’s assets secure by identifying the assets, confirming they are secure and taking steps to ensure they remain secure, which may include:

• Taking physical possession of assets
• Moving assets from accounts in the principal’s name to new accounts in the POA agent’s name
• Attempting to preserve the principal’s estate plan to the extent actually known by the agent

The agent is charged with making sure assets continue to be invested in accordance with the principal’s objectives, perhaps working alongside the principal’s investment advisor. In the role of fiduciary, the agent may need to review the principal’s investment plan and consult with the individual’s investment advisor and other advisors, mindful of the obligations imposed on trustees and other fiduciaries under state law. The agent also needs to be aware of laws affecting their position, including those dealing with the financial exploitation of vulnerable adults.

Compensation

A best practice is for a principal to discuss the proposed appointment with the desired agent before a POA is signed.

This can help avoid miscommunication and misinterpretation of expectations, and compensation is an important component of the discussion. When a POA authorizes a family member or friend to act as agent, the document may state the position is without compensation. If compensation is allowed, the principal and the agent should determine ahead of time the basis by which the agent expects to be compensated and a reasonable rate of compensation. Alternatively, compensation could be based on the value of the assets for which the agent has responsibility. In any case, the agent should be able to justify why the stated arrangement is reasonable for both parties.

When authority expires

An agent’s responsibilities typically end when the principal dies. However, authority could end under other circumstances, for example:

• The principal is no longer incapacitated
• The principal revokes the authority
• The court appoints another individual to act as guardian or conservator for the principal

Conclusion

An agent named in a financial POA has significant responsibility and authority to act on the principal’s behalf and in the principal’s best interest. The agent may have access to the principal’s bank and investment accounts, sell real property or enter into contracts that may affect the principal. These duties and others are important to consider before you authorize an agent to act on your behalf or before you accept an appointment to fill the role of agent.

To learn more, contact your Glenmede Wealth Advisor.