Someone who has financial power of attorney to manage your property cannot legally transfer money to themselves or their own accounts from yours without written consent for a specific purpose. In general, the power of attorney relationship is one of trust, and that trust is backed by many legal protections and a high standard to guard your best interests.
If you’re considering setting up a power of attorney to help you manage your financial matters or want to have an option in place for the future or in case you’re incapacitated, consider working with an estate planning lawyer in Texas. An experienced estate planning attorney can help you create a comprehensive plan and back it with documents and legal vehicles, including wills, trusts, and power of attorney documents. Often the powers of attorney are signed in front of two witnesses and a notary at the same time that the Will or trust is signed.
What Is a Power of Attorney?
A power of attorney is a legal document that designates someone as your legal agent. That means the designated person can act on your behalf to take actions or make decisions.
POAs (Powers of Attorney) can be used to designate someone to act financially or to make healthcare decisions, but the same document cannot do both. In some cases, you can create a limited POA that gives someone the legal power to do a single thing in your name, such as sign a contract as your proxy because you can’t be there to do it yourself.
A medical power of attorney gives the agent power to make any health care decision that you could make for yourself in case you are not able to communicate, and may include the power to put you in a nursing home facility or to withdraw life support. The health care or medical power of attorney requires a doctor’s certification that you are unable to make your own decisions before it can take effect. Federal law says that the doctor or hospital must honor the instructions given by your agent who has been designated in a valid medical power of attorney.
A financial power of attorney, also known as a statutory power of attorney specifically gives someone the power to manage your finances. For example, they might be able to access your accounts, pay bills out of your accounts, buy or sell real estate, or negotiate terms of credit in your name. The power can be as broad as anything you yourself could do with your property, or it can be tailored and limited to specific actions. Unlike the medical power of attorney, the bank or other party to a financial transaction does not have to accept the power of attorney, but the powers of attorney are commonplace in business and are usually accepted.
Why Might You Want a Financial Power of Attorney?
You can create a general power of attorney if you want someone to have the ability to help you with your finances. Older adults might do this if they want an adult child to be able to assist them with finances. In some cases, adults of any age may agree to a power of attorney to ensure a professional accountant or someone else can act on their behalf or to make sure that their bills get paid and business gets managed if an unexpected accident temporarily prevents the maker from managing their own affairs. Making a power of attorney that is effective immediately does not mean that the maker can no longer manage his or her own affairs.
Another way to use a financial power of attorney form is to create a “springing” power of attorney. This takes effect only if you are incapacitated and unable to manage your finances yourself. For this type of POA to take effect under Texas law, a doctor must examine you and certify that you are unable to attend to your finances in writing. This type of power of attorney is done with the goal of preventing the necessity for a legal guardianship.
Whether the power of attorney takes effect immediately or only in case of incapacity, your power of attorney should be a “durable” power of attorney, meaning that it will survive even if you become incapacitated. All powers of attorney automatically end immediately upon your death. A power of attorney cannot substitute for a will. You may also revoke any power of attorney at any time, but you will have the responsibility to notify third parties that your agent may have dealt with that the power of attorney is no longer in effect.
What Is a Fiduciary Duty and Does a Power of Attorney Agent Have This Duty?
A fiduciary is anyone that has a legal and ethical duty to attend to the best interests of someone else as their agent. Someone who is designated as your agent in a power of attorney has a fiduciary duty to you. That means they cannot make financial decisions or take actions with your money or accounts that aren’t in your best interest. They are supposed to be careful not to waste or lose your money.
A fiduciary duty would mean that a POA can’t just move your money to their own accounts. They also can’t use your money in ways that would be beneficial to them or their family members, such as buying things for themselves or giving money to their children. The only time a POA can use your money for themselves is with direct written permission from you. For example, in creating your POA, you might add that the POA can pay themselves $100 a week for handling your accounts. Most POAs also provide that the agent can reimburse themselves for expenses if they use their own money to take care of your business. They have a duty to keep your money in a separate account from their own and to keep good records of every expenditure in case they are ever questioned.
If a POA breaks this trust and does transfer money to themselves, they can be held legally liable. Legal liability may include jail time if it is criminally prosecuted or may involve a civil suit to recover the money.
This doesn’t mean the agent on a power of attorney is held responsible for all negative outcomes, though. For example, if a POA is managing investment assets for you, they can’t guarantee every investment will see a positive return. However, they can’t engage in investment activity with your accounts if they have a reasonable expectation that the results will be negative. They cannot be reckless with your money or steal it.
What Can a Financial Power of Attorney Do?
Someone with a durable power of attorney can do many things depending on what the document says, including:
- Gain access to and manage your checking, savings, and credit accounts
- Pay your bills and discuss statements and account matters with creditors
- Negotiate on your behalf
- Make and sell investments in your name
- Manage, buy or sell real estate or collect rent on rental prop
- Handle taxes
- Manage your businesses
- Purchase items of necessity for you, such as food and clothing
- Donate money in your name to charities you support
When you create a power of attorney, you can limit POA powers according to your wishes. You might prohibit charitable donations or prohibit changes to certain investments, for example.
It’s important to consider the future ramifications when adding these types of provisions to a POA, though. Working with an experienced estate planning attorney can help you know what might be a good idea and what could limit positive outcomes unnecessarily in the future.
Choosing the Right Person as Your Financial Power of Attorney
You can see that a financial power of attorney has considerable access to your personal information and money. It’s important to choose someone you trust and who is able to carry out this responsibility. Even though they have a legal obligation to look out for your best interests, if they fail to do so, someone may have to start a lawsuit to recover your money that was wrongfully managed. You may revoke your power of attorney at any time, but it may be impossible to get back the money that was already spent. Lawsuits are expensive and not always successful, so make sure that the agent you choose is really worthy of your trust.
Traits to look for in an agent to take on the role of power of attorney include responsible money management and attention to detail. You also want to choose someone who is available, able, and willing to handle this responsibility. For example, you may not want to choose someone who lives far away or who has too many other obligations that take all their time. Talk to the person beforehand about what might be involved and ensure they are comfortable taking on the job — they may have to work alongside your accountant or attorney and interact with representatives from your bank, creditors, and other financial institutions. If you do not get the consent of the person you choose, they may decline to accept the job when the time comes for them to take charge. It is also important to name an alternate person, in case your first choice for an agent is unable to act at the time they are needed.
Get Experienced Help With Your Estate Plans
Choosing a power of attorney is only one step in planning for your future and the future of your loved ones. Talking with an estate planning lawyer can help you understand what documents you might need and how to protect your interests and wealth in the future. Reach out to the Laura D. Heard Law Firm Inc. for a consultation to find out more about estate planning options today.