Every day, I work with adult children who discover, usually in crisis, they were appointed to act on behalf of a parent using a durable power of attorney. The vast majority of those appointed do not know what they are supposed to do or that there may be liability associated with the actions they take in when using the power of attorney. Many continue to act with regard to the parent’s finances as if they were merely helping a family member conduct simple tasks, while other, unfortunately, assume that the appointment allows them to do whatever they wish with the parent’s assets. Unfortunately, both positions are mine fields waiting to explode under the feet of the well-meaning child and vulnerable parent.
When you have been appointed to act on behalf of another under a power of attorney, there are many things you need to know. First, when you are appointed, you become what is known as an “agent” or a “fiduciary”. The person on whose behalf you are acting is called the “principal.” As an agent, you owe the principal a “fiduciary” duty. A fiduciary duty is a duty of loyalty, trust and confidence. A fiduciary must not use his position for personal gain and must put the interests of the principal before their own.
When you find out you have been appointed to act on behalf of a parent under a power of attorney, you must first determine whether you are willing to accept the duties required of an agent. As stated above, your first duty is to conduct the principal’s business with trust, confidence and loyalty. You must manage their assets prudently and in their best interest. You must refrain from using your position as agent to benefit yourself. Any special skills you have must be used in managing their assets. For example, if you are an accountant or a financial planner, you must use these special skills to benefit your principal. If you fail to maintain your fiduciary relationship, manage the assets prudently or refrain from acting in your own interest, you can be liable for any damages that result.
Most adult children find themselves in conflict with their parents or other family members when acting as an agent, not because they have done anything intentionally wrong, but because they continued to conduct their parent’s business as a “family” interaction, instead of a business interaction. Once you begin acting as an agent, you can no longer treat this role as another role amongst family. You must treat your role as if you are caring for a stranger’s money and at any time you can be asked to account for and justify your actions.
Most states have laws that require agents to conduct themselves in a certain manner. The following is a list of general rules that should be followed by an adult child acting as an agent for their parent to help maintain the proper relationship with the principal:
1. Keep accurate documentation of all financial transactions including all receipts and bank statements.
2. Maintain an updated accounting of all receipts and disbursements.
3. Never mix the parent’s assets with the agent’s, no matter how little money the parent has and how much they need.
4. Do not borrow money from your principal without getting the proper legal advice about how such a transaction can be conducted while you are an agent.
5. Never use the principal’s assets or income to pay your bills or meet any of your obligations.
6. If a parent requires something and does not have the resources to pay for it, the agent should refrain from putting his or her money in the parent’s account to cover the expense without documenting that it is the agent’s money and whether the agent expects repayment. If the agent expects repayment, there may be a conflict of interest and the agent should seek the advice of an attorney regarding resolving that conflict of interest.
7. If the agent is to be paid for the work he/she does using the power of attorney, the power of attorney must authorize that compensation and the agent must document the reason or purpose of the payment as well as whether it is a reasonable compensation for the service provided.
8. The agent should keep a log of all the work they have done, including the date, time spent, actions taken and any fees or costs they incurred doing these duties.
9. If the agent is also providing caregiving services to the principal, the agent should keep a log of all the time he/she spends caregiving, including the date, time spent, tasks performed, travel, and any costs or expenses incurred performing the tasks to demonstrate the separate actions and to justify any compensation received for caregiving.
10. If the agent is a caregiver or is hiring a caregiver on behalf of a principal, caregivers should have a written agreement regarding services provided and payment for the services.
If you do not believe you have the time or ability to fulfill these duties, you may want to decline the appointment. If you accept your appointment, you should seek the advice of an attorney who can more fully advise you on your responsibilities, duties and consequences of failing to fulfill them.
