Serving as Financial Power of Attorney for a parent or friend is serious business. You may see it as just helping mom pay her bills. But the law imposes many significant legal duties on someone who acts as power of attorney for another.
When you act as someone’s power of attorney the law refers to you as the “agent” and the person for whom you are acting as “the principal.”
In Pennsylvania your duties as agent are specified in the Probate, Estates and Fiduciaries Code. Section 5601.3 of the law (20 Pa. C.S.A. §5601.3) lays out your duties when you are acting as someone’s agent under a power of attorney/ It says the agent must:
(a) General rule.--Notwithstanding any provision in the power of attorney, an agent that has accepted appointment shall:
(1) Act in accordance with the principal's reasonable expectations to the extent actually known by the agent and, otherwise, in the principal's best interest.
(2) Act in good faith.
(3) Act only within the scope of authority granted in the power of attorney.
(b) Other duties.--Except as otherwise provided in the power of attorney, an agent that has accepted appointment shall:
(1) Act loyally for the principal's benefit.
(1.1) Keep the agent's funds separate from the principal's funds unless:
(i) the funds were not kept separate as of the date of the execution of the power of attorney; or
(ii) the principal commingles the funds after the date of the execution of the power of attorney and the agent is the principal's spouse.
(2) Act so as not to create a conflict of interest that impairs the agent's ability to act impartially in the principal's best interest.
(3) Act with the care, competence and diligence ordinarily exercised by agents in similar circumstances.
(4) Keep a record of all receipts, disbursements and transactions made on behalf of the principal.
(5) Cooperate with a person who has authority to make health care decisions for the principal to carry out the principal's reasonable expectations to the extent actually known by the agent and, otherwise, act in the principal's best interest.
(6) Attempt to preserve the principal's estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal's best interest based on all relevant factors, including:
(i) The value and nature of the principal's property.
(ii) The principal's foreseeable obligations and need for maintenance.
(iii) Minimization of taxes, including income, estate, inheritance, generation-skipping transfer and gift taxes.
(iv) Eligibility for a benefit, program or assistance under a statute or regulation.
This is an imposing list of responsibilities. Note that one of the requirements is that you must: “Keep a record of all receipts, disbursements and transactions made on behalf of the principal.” This means you should have records that allow you to account for every dollar of income and assets you receive and disbursements you make.”
Pennsylvania law provides that you can be called to account for your actions. You may have financial liability if you are unable to adequately demonstrate the propriety of your actions.
So you should maintain careful and complete records of all steps you take on behalf of the principal. It is important that you retain receipts and maintain good records of all checks written, other disbursements made, all liabilities of the principal with which you have involvement or knowledge, all income and other assets you receive, and all actions you take on behalf of the principal. The maintenance of such records minimizes the possibility that you will be exposed to liability. It may make sense to hire an accountant to help you set up the books.
Before you start to act as someone’s power of attorney you should review your duties as set out in Section 5601.3. And be sure you read the power of attorney document and understand your duties and responsibilities before you start to act on behalf of your principal. If there is anything you don’t understand, get legal advice up-front not after the fact.
If ever you are acting as an agent and are not sure you are doing the right thing, seek out professional advice not only to protect the principal, but to protect yourself.