What Are the Duties for Financial Powers of Attorney?

Step 1: Don’t panic. Do start reading.

Read your power of attorney document and understand what the person you are caring for (the “principal”) has given you power to handle on their behalf. Many powers of attorney also include information addressed to the agent (typically at the end of the document) that explains the legal duties they owe to the principal.

Step 2: Figure out what you are in charge of.

Make a list of the principal’s assets and liabilities. If the person you are caring for is organized, then that will easy. Otherwise, you will need to find:

• Brokerage accounts
• Bank accounts
• 401(k)s/IRAs/403(b)s
• Mortgage bills
• Tax bills
• Utility bills
• Insurance bills
• Phone, cable, internet bills

It’s also wise to review your principal’s spending patterns, to get a sense of any recurring expenses. Monitoring your principal’s mail for a month will help you to figure out where the money comes and goes. Also try to find where they keep their bills, especially their tax bills. And if your principal is over age 72 and has granted you authority to manage their retirement plan, don’t forget to make any required minimum distributions.

Note, if your principal manages his or her finances online, then you will need to contact the relevant institutions and establish that you have power of attorney, so that you can have access to these accounts.

Step 3: Protect the principal’s assets.

Make sure the principal’s home is secure. Check it for leaks and any damage that needs to be addressed. It may also be helpful to record a video inventory of the residence. If the principal isn’t occupying the home while incapacitated, turn down the heat (but don’t let the pipes freeze). If you aren’t worried about freezing pipes, you can turn off the lights and the gas. Is mold an issue in the area? If so, then you had better keep the air conditioning on to prevent an expensive infestation. Is dry heat a problem, like in the desert? Desert dwellers have tricks to seal up a house to prevent the wood floors from cracking and other damage from dehumidification. If you are not local, ask the neighbors what to do.

If it appears your principal will be incapacitated for a long time, consider canceling the phone and any newspaper subscriptions. Consider putting their car on blocks and draining the oil.

Keep an eye out for potential poachers! It’s a sad fact, but sometimes the family of an incapacitated person will take property and claim that it had been promised to them (or that it belonged to them all along). It may be prudent to change the locks on the principal’s home. Also note that an unoccupied residence may be noticed by squatters, so visit the location every week if no one lives there.

If you have power over the principal’s investments and foresee the incapacitation continuing for the long term, take a close look at any brokerage statements for high-risk positions that you don’t understand, such as options, puts and calls, or commodities. Seek advice on liquidating positions that you don’t have the expertise to handle.

If you are not local to the principal, you are going to be inconvenienced; this is something to consider when making out your own power of attorney. You can delegate many of your duties to a property manager, such as checking on the house and fetching the mail. However, you should make at least one trip yourself to make sure you have a good grasp of the situation. I would not hesitate to talk to the neighbors and have them keep an eye on things; they don’t want squatters or crimes next door any more than you do.

Step 4: Pay bills as necessary.

Be sure to review your principal’s bills and credit card statements for potential fraud. Consider temporarily suspending credit cards that you will not be using on the principal’s behalf. Remember, however, that some people have monthly bills paid automatically by credit card. If that’s the case, be sure to make alternative arrangements to pay those bills if you suspend a card.

Step 5: Pay the taxes.

Many powers of attorney grant the agent authority to pay the principal’s taxes. If this is the case, you will be responsible for filing and paying taxes during the principal’s lifetime. If the principal passes away, however, the executor of the principal’s will is responsible for preparing any final taxes. You should nevertheless be prepared to help if needed.

Step 6: Estate planning.

If the person you are caring for does not have a trust, you should consider setting one up for them (assuming the power of attorney grants you that authority). This is especially important if the principal is gravely ill. Speak with a qualified attorney for help. Agents cannot write a will for their principal, but estate planning while the principal lives will often reduce costs later.

If your principal is in a nursing home that it is being paid for by Medicaid (or a similar state insurance program), then it is extremely important you speak with an elder law attorney as soon as possible. You may be able to save the principal’s estate at least some of the costs of their care.

If you have not spoken with an elder law attorney, then the best advice I can give is “don’t sell the house.” As long as someone told Medicaid that the principal intended to move back home later, then you will not have to sell the house to pay the bills. If – on the other hand - you sell the house and now have money, the government will require you to spend that money on the person’s health care. Try to avoid this.

Step 7: Keep excellent records.

Track every expenditure that you make, and every action you take, on your principal’s behalf. Not only is diligent record-keeping required, it also will help you demonstrate that you have upheld your duties and acted in the principal’s best interests. It will also be important for you to receive reimbursement for expenses, and (if the power of attorney provides for it) the time you spent acting as agent.

Step 8: Act in the principal’s best interest.

If you know what the principal expects you to do with his or her property, then try to honor those expectations when reasonably possible. If you don’t know the principal’s expectations, then always act with their best interests in mind.

Written by Jeffrey Gaffney, a 25-year attorney and retired Navy captain. A graduate of the University of San Diego School of Law, he began his practice helping aggrieved investors recover from unscrupulous stockbrokers. He is an arbitrator for the New York Stock Exchange, the Pacific Stock Exchange and FINRA. Gaffney also serves as a legal fellow with FreeWill (opens in new tab), a digital estate planning platform. After years of securities work, he changed his emphasis to trusts and estates as a way to further protect people and their futures.