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Understanding Managing Assets under a Power of Attorney

Maintaining control of one’s money is a priority; it serves to signify being a functioning and independent adult. However, accidents, injuries or simply decline due to age can all inhibit or eliminate one’s ability to makes these decisions reasonably and in a timely manner. Both young and old can benefit by having an estate plan that assigns these responsibilities to another person, so appropriate care can continue uninterrupted and ensure a capable individual takes over these duties. A spouse or child is often designated to serve in this capacity through a Durable Power of Attorney (POA) but may not really understand what they are being asked to do nor how to properly use the authority. This is especially true if they have no prior information or experience regarding how personal finances are handled. A discussion of what a POA is, and key points designated agents need to understand about making financial decisions under the power transferred through these documents follows:

POA Basics

When a person becomes physically and/or mentally incapacitated, a third party is required to make decisions about his/her medical care, access financial accounts, and oversee personal affairs. While next of kin may receive this responsibility if no one is officially and legally designated, it can lead to disagreements and delays in executing critical decisions since no one person has ultimate authority. Avoiding this confusion, as well as addressing situations where no next of kin exists, is the purpose for POAs. POAs transfer authority over a person’s affairs when certain events or circumstances set out in the terms of the POA occur. The scope of authority granted to an agent can be very broad or narrow, depending upon the desires of the principal. In order for a POA to be valid, the principal must be competent when it is signed. Otherwise, a guardian or conservator will be appointed by the probate court, a lengthy and expensive process.

In addition, the principal does not relinquish all legal authority over matters delegated through a POA (unless incapacity is present) and may revoke it at any time. Generally, POAs terminate when the principal becomes incapacitated; but a certain type, Durable POAs, continue to be valid and enforceable even after the principal loses competency. Unless an individual needs a POA for a specific purpose, executing a Durable POA is best, since it covers protecting one’s finances when such oversight is most needed.

Managing Finances Under a POA

Children of aging parents who find themselves in the position of being the designated agent often struggle to understand exactly how they are supposed to utilize a POA. Failure to properly exercise this authority can subject an agent to liability from the personal representative (once the parent dies) or other interested parties; i.e., family members or potential heirs. Agents stand as fiduciaries (or trusted individuals) in all transactions regarding the principal’s property; and while the nuances of fulfilling this role are complex, generally, all agents have the following duties:

  • a duty of loyalty, to act for the principal’s benefit;
  • a duty to avoid conflicts of interest that could interfere with the agent’s ability to act impartially and in the principal’s best interests;
  • a duty to act with the level of care a prudent person would use in similar circumstances;
  • a duty to keep copies of all receipts and other financial documentation;
  • a duty to cooperate with the person authorized to make health care decisions for the principal; and
  • a duty to protect the principal’s estate plan, and to follow his/her wishes (if known).

Actions taken in good faith, even if damaging to the principal’s interests, will usually escape liability; but an attorney should be consulted to avoid any potential issues.

Speak With a Georgia Estate Planning Attorney

Planning for your family’s future is an important decision that needs the attention and guidance of an experienced estate planning attorney. The Atlanta attorneys at MendenFreiman have extensive experience with using POAs as a plan for financial management, including an individual’s potential incapacity, and can offer creative and effective solutions to address your desires and concerns. Contact us to schedule a consultation.

Resource:

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