Roles of a Financial Power of Attorney

Understanding Financial Power of Attorney: What It Is and Why It Matters

Being named as someone's financial power of attorney is a significant responsibility. It means that you have been entrusted to make legal and financial decisions on their behalf if they become incapacitated or unable to manage their own affairs.

This authority is typically granted through a power of attorney document - a legal arrangement where one party (the "principal") authorizes another (the "agent" or "attorney-in-fact") to act on their behalf in legal or financial matters.

The reasons for appointing a financial power of attorney can vary, but often involve:

• Planning for potential future incapacity due to aging, illness, or injury
• Streamlining financial management if the principal will be unavailable
• Obtaining assistance with complex financial matters

Regardless of the circumstances, acting as a financial agent is a major obligation that should not be taken lightly. You will have a fiduciary duty to always act in the principal's best interests.

The Key Roles and Responsibilities

As a financial power of attorney, you will be authorized to handle a variety of money-related tasks on the principal's behalf such as:

• Managing bank accounts - depositing, withdrawing, transferring funds
• Paying bills and managing household finances
• Filing tax returns
• Managing investments and retirement accounts
• Buying, selling, or mortgaging real estate
• Applying for public benefits like Medicare or Social Security
• Operating a small business owned by the principal

The scope of your authority will depend on the specific provisions outlined in the power of attorney document. It may grant limited or broad powers over different aspects of the principal's financial life.

Acting in Their Best Interests: Ethical Obligations

One of the most critical aspects of being a financial power of attorney is the duty to act solely in the best interests of the principal. This legal obligation is known as a "fiduciary duty."

As a fiduciary, you must:

• Always put the principal's needs and wellbeing first
• Manage their money and property with utmost care and good faith
• Keep their assets separate from your own
• Avoid conflicts of interest that could impair your ability to act impartially
• Never commingle funds or take the principal's money for yourself

Violating this fiduciary duty is considered a breach of ethics and could have serious legal consequences. It's essential to understand these responsibilities and ethical constraints fully.

Clear Communication and Cooperation

While you will have legal authority to make financial decisions, it's still generally advisable to involve the principal as much as possible in the process if they have capacity.

Make an effort to:

• Clearly explain your role and the reasons for any actions you take
• Consult them on smaller or non-urgent financial decisions when feasible
• Keep them updated on the status of their assets and finances
• Respect their wishes and personal values to the extent possible

If the principal can no longer fully participate, you may need to work closely with their other family members, caregivers, or legal representatives. Open communication and cooperation is key.

It's wise to have a plan for periodically reviewing things with those involved to ensure everyone is on the same page about the principal's financial situation and needs.

Managing Financial Accounts and Transactions

One of your central responsibilities will be properly maintaining the principal's financial accounts and ensuring their bills and expenses are paid in a timely manner. This includes:

• Accessing and monitoring their bank, investment and credit card accounts
• Setting up payment services or automatic transfers as needed
• Making deposits, withdrawals, and balance inquiries
• Communicating with financial institutions on their behalf
• Keeping detailed records of all transactions

It's important to follow security best practices like using strong passwords, watching for fraud, and limiting account access only to those who truly need it.

You may also need to re-title accounts solely in the principal's name, consolidate accounts for easier management, or open new accounts if existing ones are inaccessible. Coordinating with their estate planning attorney can help with these situations.

Keeping Detailed Records

As a financial agent, you have a legal duty to keep full and accurate records related to the principal's money and property that you manage. This includes:

• A comprehensive list of all assets and account information
• Copies of legal documents like the power of attorney itself
• Records of income sources like Social Security or pensions
• Statements for all financial accounts
• Receipts for every expense paid or check written
• Logs detailing actions taken and the reasons behind them

These records help protect both you and the principal. They account for proper handling of the principal's money, allow reconstruction of events if needed, and ensure nothing is overlooked.

Organized, detailed record-keeping is critical. Consider using a secure filing system, financial software, or working with an accountant to help manage the documentation.

Avoiding Conflicts of Interest

While serving as an agent, you must be vigilant about avoiding conflicts of interest - situations where your own interests improperly influence your ability to act solely for the principal's benefit.

For example, you should never:

• Commingle funds from your accounts with the principal's money
• Borrow or gift funds from the principal's assets
• Use your authority for your own gain or that of others besides the principal
• Get involved with any investment, purchase, or activity that could compete with the principal's interests

If a potential conflict arises, it's critical to address it immediately by removing yourself from that situation or resigning from the role entirely if the conflict cannot be avoided.

Being aware of these issues and maintaining clear boundaries helps ensure you always put the principal's welfare first.

Limitations and When to Seek Additional Help

While the power of attorney may grant you broad authority, it does not give you unlimited power. There are certain actions you cannot take, including:

• Making decisions after the death of the principal (your authority terminates)
• Changing or creating a new will or trust for the principal
• Making gifts from the principal's assets, unless expressly permitted
• Overriding previously arranged beneficiary designations on things like insurance policies

Know the boundaries of your role. If something you want to do falls outside of your authority or you're simply not sure, seek legal advice before acting.

You may also need to consult professionals like accountants, investment advisors or care managers when dealing with complex financial, tax or medical situations that exceed your own expertise.

Don't be afraid to ask for help when needed to ensure you're carrying out your duties properly.

Wrapping Up - Final Thoughts and Next Steps

Taking on the role of financial agent is a major commitment, but following some core principles can help:

• Always act in the principal's best interests and make ethical decisions
• Seek input from the principal and cooperate with those close to them
• Manage finances diligently through proper account oversight and record-keeping
• Understand the boundaries of your authority and recognize when you need additional help

If disputes arise or you face challenges you can't resolve, work with an estate attorney or consider petitioning the court for guidance or relief from your duties.

Ultimately, being properly prepared and knowing your responsibilities as a financial power of attorney can help make this an easier process for all involved.