If you have agreed to serve as an agent under a power of attorney given to you by another person it is vitally important that you understand exactly what your duties and responsibilities are and how to carry them out properly and make sure you are protected from liability.
You are a Fiduciary.
First, understand that you are a fiduciary and have the potential for fiduciary liability to the same extent as an executor of an estate or trustee of a trust. Your actions can be questioned by an appropriate party in interest filing a petition with the Orphans’ Court. Everything you do should be done to promote transparency and the ability to provide information and if necessary produce a financial accounting of your actions should the need arise.
The agent’s primary obligation is to act only in the best interest of the principal who granted the power of attorney. Another obligation is to not commingle assets with the principal, but keep all of the agent’s and principal’s property separate. While these obligations may seem simple and obvious at first blush, there are a number of commonly encountered actions by agents that we have observed which while appearing innocent and commonplace can be challenged as violating these primary duties.
We frequently encounter agents using an account established in joint title between the principal and the agent as the account through which the bulk of the financial transactions carried out for the benefit of the principal are being conducted; this should be avoided. A joint account is deemed to be property of both the agent and the principal, so immediately there is a question of commingling assets. Upon the death of the principal questions can also arise as to whether there was a true intent that the joint account be treated as a gift to the surviving tenant agent, or whether the remaining balance of the account should be included in the estate of the principal.
If the principal has established a joint account with the agent prior to the agent assuming active duties under the power of attorney this account should be kept separate and not utilized in conducting business for the principal. An account titled in the sole name of the principal, but with the agent having access is the proper form of account to use in doing business for the principal. Of course, if the principal runs low on funds and all of the funds of the joint account were contributed by the principal, it would be appropriate to access the funds in the joint account and make them available to the principal by depositing them into the account that is actively being used to conduct business for the principal.
If the principal desires to establish a joint account with the agent with the intention of making the contents of the account a gift to the agent upon the death of the principal and this desire occurs while the agent is actively serving under the power of attorney it is essential that the agent not use the authority under the power of attorney to complete this gift. This gift should be accomplished through the actions of the principal making the arrangements for the joint account and clearly directing the establishment of the account. The agent is well advised to request his or her own copy of the paperwork establishing the account to be able to clearly prove if needed in the future that the account was created at the express direction of the principal and not through the actions of the agent.
The making of gifts by the agent can be problematic for a number of reasons. First, gifts take funds away from the principal, so they are inherently not in the exclusive best interest of the principal, so they automatically come under scrutiny. Next, the power of attorney must be carefully consulted to determine whether it enables the agent to make gifts and, if so, are there limitations on the ability to make gifts. Under the current law in Pennsylvania a general durable power of attorney does not inherently have the ability to make gifts unless the written power of attorney clearly states this in writing. Additionally, the power of attorney might restrict the giftgiving to only certain family members or it may be limited as to the amount. A power to make “limited gifts” is statutorily defined to be up to, but not in excess of what is then the current federal annual gift exclusion amount (currently $14,000, per donee).
Even if the power of attorney permits the making of gifts it is a best practice if possible to include the principal in the process and where appropriate other family members, so it is clearly established that the making of the gifts is being done with the knowledge of and at the direction of the principal. If the principal is not in a position to be involved in the process, gifts should be approached even more carefully. Does the principal have sufficient assets remaining in his or her name after making the gifts that the giftgiving would not be considered imprudent? What is the motivation for the giftgiving (is there an established practice from prior years of the principal making the gifts in question, for example)? Who is being chosen as the recipients of the gifts and are all potential donees being included? If the answers to these questions are no or otherwise raise concerns, it may be a good idea to forego the giftgiving.
It is essential to keep appropriately detailed records and copies of all financial documents. It must be remembered that you may be called upon to prepare a detailed financial accounting many years in the future at the conclusion of serving as agent. Copies of bank and other financial statements should be maintained in a safe and secure manner throughout the period you are serving as agent. Banks and financial institutions are only maintaining records for 7 years presently. If you do not maintain copies yourself and need to go back beyond 7 years our experience is you will be unable to do so.
Items of receipt and expenditure need to be recorded with specificity. For example, a deposit of 3 checks which total $150 should not be noted simply as “Deposit – $150”. The payor of each check should be noted in the records so you will clearly be able to establish the various sources of funds received by the principal, which is required in a power of attorney account. Ideally, copies of all checks presented for deposit and copies of all invoices paid from the power of attorney account should also be maintained and kept in date sequence, such as in looseleaf binders, or digitally, categorized by date and with appropriate backup security.
Use of Cash.
Using cash to make payments on behalf of the principal is not a good idea. If the cash in question is obtained by cashing a check that otherwise would be deposited in the principal’s account, it may make it harder to determine the specifics of the that particular item of income since only the net deposit will be seen as going into the bank account and it will not match the check issued by the specific income payor. On the disbursement side, it makes it difficult, if not impossible, to be able to record or remember what the cash was used to pay. We frequently encounter the use of cash in making routine purchases for the principal, such as for groceries, household supplies and medicines. A better approach for these would be to use a dedicated credit card that would otherwise not be used for any purchases by the agent, since the credit card statements and store receipts will provide documentation of what is being acquired for the benefit of the principal and the payment of the monthly credit card bill will also be clearly reflected in the financial records. If cash is required to be used it is essential to make written contemporaneous records of what the cash is being disbursed for.
You take on a lot of responsibility when you serve as agent under power of attorney and in most instances this is a “labor of love”. We think it is unfair when an agent later feels like a victim at the hands of family members, or other interested parties questioning their actions which in most cases were innocent and well-intentioned, but lacking either in the required formalities or proper understanding of their legal obligations. The observations noted above are intended to assist you in avoiding situations that could potentially lead to financial liability or, at a minimum, a great amount of time, effort and embarrassment if your record keeping and conduct can be called into question under the law. Anyone about to actively begin serving as agent under a power of attorney should consult with a competent attorney experienced in Orphans’ Court matters.