Financial Power of Attorney Dos and Don’ts

No one enjoys the idea of losing their independence and having to rely on someone else. However, when used properly, a power of attorney can ensure that a trusted person is handling your financial affairs when you’re not mentally or physically capable of doing so yourself. Powers of attorney are highly customizable and can be drafted to address individual situations. Initially an inexpensive way for someone without a lot of money to do some estate planning, a power of attorney has evolved into a fairly standard document. If you’ve been entrusted by someone else to act on their behalf, here are some tips to follow.

• Keep a detailed accounting of all your activities. This record must be provided annually to certain recipients, including the IRS.
• Contact the principal’s bank, financial planner, accountant, lawyer, and nearest relative to notify them that the principal is unable to manage his or her own affairs and that you have the legal authority to do so.
• Determine the principal’s debts, especially ongoing responsibilities such as the payment of rent, credit cards, mobile phone service, utilities, etc. Prepare a schedule of those bills and make sure they get paid. Monitor bank accounts for any suspicious activity.
• Consider cancelling the principal’s credit cards and freezing the principal’s credit report to make it more difficult for criminals to take out fraudulent loans or steal the principal’s identity.
• Get advice from an accountant or lawyer if needed. All fees for the services of consultants relating to work performed for the benefit of the principal’s financial affairs are payable by the estate, so if you need help, ask for it.

As the agent, you are bound by the document which the principal signed. If the wording of the document does not clearly state whether a certain act is allowed, a court may have to decide the issue. Any questions of potential abuse are decided by looking at whether the agent actually performed his or her role with the utmost good faith, so be careful that any actions you are unsure of cannot be perceived as exploitative. Furthermore:

• Don’t give gifts from the principal’s property or finances unless the power of attorney specifically allows you to do so.
• Don’t manage the principal’s affairs for the benefit of anyone other than the principal. The principal’s best interests are your sole concern and you cannot profit from your appointment under any circumstances.
• Don’t borrow money from the principal’s estate.
• Don’t try to change any of the principal’s testamentary designations.
• Don’t take a fee for your service unless the power of attorney specifically allows you to do so. If it doesn’t and you believe a fee is appropriate, seek court approval.

At Bunch & Brock, we understand that each estate plan must be as unique as the person it serves. With more than 35 years of experience in the state of Kentucky, we have helped many people understand their rights and responsibilities. To get started, or if you have any questions about this topic, call us at 859-254-5522 or fill out this online form.