What happens when a loved one gives you a Power of Attorney

By Cathleen Summers

A Power of Attorney is a document that allows a person (the principal) an opportunity to authorize an agent — usually a trusted family member or friend — to make legal decisions when he or she is no longer competent.

Being chosen as the agent (or attorney-in-fact) by a loved one should make you feel pleased as it means that the principal has faith in you; that you possess good judgment and can be relied on to be fair and trustworthy in your decision-making. However, often times the attorney-in-fact has little idea regarding their responsibilities and role.

In all cases, it is important to carefully read the Power of Attorney document. There are many different ways a Power of Attorney can be written. What you can do depends on the specific language of the Power of Attorney that appoints you. Below, however, is a discussion regarding common questions that we receive regarding the Power of Attorney:

• When does my authority start? How do I activate the Power of Attorney?

Some Durable Power of Attorney documents allow your authority to take effect immediately. If so, your power to act begins when the principal signs the document. However, it is common for the document to state that the authority to start serving as the attorney-in-fact begins when a doctor signs a letter saying that the principal can no longer manage his or her own finances. This is called a springing power of attorney.

• What is a Durable Power of Attorney?

The majority of Powers of Attorney are durable. If a Power of Attorney is not durable, then your power to act for the principal ends if the principal becomes mentally incapacitated — rarely what you want to happen. However, if the language in the Power of Attorney says you can act, even if the principal is incapacitated, then it is durable.

• What can you do as Power of Attorney?

It is important to read the Power of Attorney document to see what authority it gives you as attorney-in-fact. Often it will have broad language that give you all powers that the principal has to manage the principal’s financial affairs. If that is the case, then among other powers you have the authority to buy and sell things for the principal, invest the principal’s money, cash the principal’s checks and pay the principal’s bills, etc.

• What can’t you do as Power of Attorney?

Even when the Power of Attorney document says you have “all powers that the principal has,” your authority may be limited. Unless the document specifically gives you the authority to accomplish these tasks, you will be prohibited from such things as making gifts of the principal’s money or other property — particularly to yourself — or changing beneficiaries on life insurance, bank accounts, IRAs, etc.

Understanding your role and responsibilities as an agent under a loved one’s Power of Attorney is imperative. Even if the Power of Attorney language does give you such powers, it would be safer for you to consult with an attorney to make sure you understand the legal consequences and limitations on your authority since you can have liability if you misstep.