By Robert C. Gerhard, III, Certified Elder Law Attorney
Serving as an agent under a Power of Attorney (POA) is an important role accompanied by significant responsibility. While it can be a rewarding way to help a friend or family member by agreeing to serve as agent under a POA, it also comes with potential risks if you make mistakes. It is a good idea for someone named as an agent under power of attorney to meet with a lawyer to discuss their responsibilities. Here are five common mistakes agents make and how to avoid them:
1. Exceeding Authority Set Forth in the Power of Attorney
One of the most frequent mistakes is acting beyond the authority granted by the POA document. Agents must strictly adhere to the powers specified in the document and can only exercise that authority. For example, if the POA does not specifically grant the authority to make a gift or change a beneficiary designation, the agent cannot legally do so in Pennsylvania. If the power of attorney permits limited gifting, those limits must be followed. In Pennsylvania the authority to engage in real estate transactions does not include the power to give away real estate, or re-title it to create or sever forms of joint ownership. An agent who exceeds their authority can potentially be held personally liable.
Always review the POA document carefully to understand the scope of your authority.
2. Failing to Keep Accurate Records
Agents are required to maintain detailed records of all transactions made on behalf of the principal. This includes keeping receipts and bank statements. Failing to do so can lead to accusations of mismanagement or even legal action to hold the agent responsible for funds spent without explanation. Agents can be removed through guardianship proceedings. An agent can be required to file an account with the court at any time.
Meticulous record-keeping protects the agent and is required by Pennsylvania law.
3. Mixing Personal and Principal’s Funds
Another common mistake is commingling the agent’s own personal funds with the principal’s funds. Agents can be reimbursed for reasonable expenses advanced on behalf of the principal but must keep the principal’s finances separate from their own funds. Commingling assets is a serious breach of the agent’s fiduciary duties. A
Generally speaking, the principal’s funds should be in accounts that are separate from the agent’s funds.
4. Ignoring Fiduciary Duties
Agents have a fiduciary duty to act in the best interest of the principal. This means making decisions that benefit the principal, not the agent. An agent must normally avoid conflicts of interest. Absent language in the POA document that reduces the standard of care, an agent must act with the competence and diligence that a reasonable person would exercise under the circumstances. Some fiduciary duties are mandatory under Pennsylvania law, and some can be modified by the power of attorney. Ignoring these duties is a mistake that can result in damage to the principal’s financial well-being, and potential personal liability for the agent.
An agent’s duty of loyalty always runs to the principal. It is a safe approach to always prioritize the principal’s needs and interests in every decision.
5. Failing to Communicate
Lack of communication with the principal (if they still have capacity) and other family members can lead to misunderstandings, low trust, and disputes. Regular updates and transparent communication can help prevent conflicts and ensure everyone is on the same page.
Keep the principal informed about major decisions and consult with them to the extent possible.
6. Failure to Attempt to Preserve the Principal’s Estate Plan
An agent should attempt to preserve the principal’s estate plan to the extent that plan is actually known by the agent, if preserving the plan is consistent with the principal’s best interests. There are several factors to consider, such as amount and nature of the assets owned by the principal, their debts and needs for healthcare or maintenance, tax considerations, and eligibility for public benefits, such as Medicaid long-term care benefits.
If the agent acts in a manner that changes who inherits what at the end of the day, disgruntled heirs may attempt to hold the agent liable.
Conclusion
Serving as an agent under a Power of Attorney is a role that requires time, diligence, honesty, and careful attention to detail. An agent must be honest and capable, you can’t have one or the other. By avoiding these six common mistakes, agents can effectively manage the principal’s affairs and minimize exposure to potential personal liability. If you have any questions or need further guidance, consult with an attorney.
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Disclaimer: We recommend that you receive ongoing legal advice from an estate attorney before attempting to administer a trust or an estate. If you wish to secure our services to provide guidance and representation in connection with a trust or estate administration, please contact us.
