NOW WHAT?

I often get a call from the person named in a power of attorney as the agent, who will ask, “Now what?” There are two speaking parts in the power of attorney play: the Principal and the Agent. The Principal is the person who takes the time to think about the appointment of a trusted person or trust company to attend to their personal financial affairs. Then the Principal takes the time and spends the money to consult with an attorney to have the power of attorney document prepared, signed, witnessed and notarized.

The other character in the play is the Agent, who is called upon to do the banking, pay the bills, handle investment duties and insurance matters, file income tax returns and sometimes even buy or sell a house.

Pennsylvania enacted its most recent Power of Attorney Act in 1999 in an attempt to clarify and update the law. Two new features were added to the form, one being the Notice and the other being the Acknowledgment. The Notice, which is printed in bold print, explains the purpose and effect of the POA to the Principal, and it must be read and signed by him.

The Acknowledgment requires the Agent to acknowledge, in writing, that he understands the nature of the relationship and affirms that he will properly discharge his duties. Unless this part of the POA form is signed and dated, the Agent has no authority to act. And the Agent must sign it and date it when he starts to do his duties.

This is a critical juncture in the life of a power of attorney. When should the power be transferred? Is it only to be used when the Principal is at death’s door, such as in a coma? Or can it be used at other times? Can it be used right now?

The answer is that there are two types of POA: ‘immediate’ or ‘springing.’ An immediate POA can be used immediately upon its proper execution by the Principal and the Agent. A springing POA, however, can only be put into action upon the occurrence of a certain event, such as the declaration by a physician that the Principal is no longer capable of handling his own affairs.

So now back to the “Now what?” question. The Agent has to commit to act solely on behalf of the Principal. This is a serious promise, called a fiduciary duty, which means that the Agent must put the Principal’s interests ahead of his own. This is not too difficult if the Agent is an institution, like a trust company, which makes its money by handling other people’s finances. But if the Agent is a relative, such as a son or a daughter, then there may be temptations that would not otherwise exist, such as the temptation to use some of the Principal’s funds for things that benefit the Agent. This is where the trouble starts.

Another obligation is that the Agent has to promise to keep a full and complete record of each and every financial transaction. This allows the other family members to request an accounting of the Principal’s money. It also allows the Agent to sleep at night knowing that he has done the right thing with the Principal’s money. I can’t tell you how often Agents will agonize over this, and their guilt, real or imagined, will flow out of every pore. I see the burden that these documents put on the relatives and it is heavy.

There is an opportunity for the Agent to charge for his services, however, which may help with the guilt. The Agent can either charge an hourly rate for the financial work that he does, or a flat monthly fee of a couple of hundred dollars. This charge can help the Principal overcome the perception that he is burdening the Agent, since the Agent can at least earn a little money for the effort.

And one major promise that the Agent has to make in the Acknowledgment is that he cannot commingle any of the Principal’s money with his own. This is critical to the process, because most of the abuses that occur involve this violation. Commingling means putting all of the money of the Principal into the accounts of the Agent. That is simply not permitted and if it should happen, it is dealt with very harshly by the courts.

If you are named as the agent for someone, it would be a smart move for you to consult with your friendly neighborhood attorney for some advice and guidance. There is a lot at stake, including your reputation, so you will want to take your time and do it right.