A power of attorney authorizes a person (an “agent”) to act on behalf of the “principal” when the principal is no longer able to make his or her own decisions (i.e., when the principal is incapacitated). It’s an essential component of a person’s estate plan. But, one important determination that is often overlooked by the named agent is whether the agent should agree to act as the principal’s agent. The job comes with a slew of legal requirements as well as heightened potential legal and personal liability for the agent. Before accepting appointment as an agent, take a moment to consider the implications of the appointment…and whether declining to act might be more appropriate than accepting the appointment.
Let’s look at a common scenario. Mary is a widow with two adult male children. Mary has executed a power of attorney naming her sister Sue as her agent and one of her children as the backup (alternate) agent. Mary prefers her sister because she doesn’t feel that the alternate (her son) is as capable of helping her as Sue. Mary’s estate plan provides that all her assets will go to her adult children upon her death. Mary starts showing cognitive decline and her doctor has determined that she can no longer manage her personal affairs. That inability to manage her affairs is typically the trigger to activate a power of attorney. Sue “accepts” the appointment when she begins exercising her authority or performing her duties as agent.
But, should Sue accept and start exercising her authority? Sue has been put in a difficult position by Mary. Sue is not an attorney, and she has never acted as an agent under a power of attorney before. She is not familiar with the laws governing the job. Maybe she has read the power of attorney, but it doesn’t make much sense to her. Still, she feels duty bound to help her sister but also fearful of missteps (as well she should be). Plus, she doesn’t want to ruffle feathers with her nephews (Mary’s kids) by making decisions with which they might disagree.
Sue doesn’t know, for example, her job of managing Mary’s assets as required by law. She doesn’t know of her duty to keep accounting records for all transactions. She doesn’t appreciate the nuanced distinction between acting as she thinks Mary would want her to act and the fiduciary duty of acting in Mary’s best interest. Plus, an agent has liability for his or her actions as agent. A power of attorney can waive liability for the agent. Sue would have appreciated that, but the language isn’t always customarily added to the average power of attorney.
An agent is entitled to reasonable compensation, but because of the relationship, Sue doesn’t feel like she should charge Mary for the work she performs. Still, the work as an agent can be substantial and time consuming. That means that Sue is doing challenging work, for which she doesn’t get paid, and for which she has personal liability if she fails to do the work correctly. She has nothing to gain from agreeing to act as agent, and much to potentially lose. The work can last for a very long time and impart emotional distress on Sue.
Luckily, in this case at least, there is a solution for Sue. Mary’s power of attorney listed one of her adult sons as the alternate agent to act if Sue was “unable or unwilling to serve.” Sue simply needs to write a short letter to the adult son specifying that she is declining to act as the agent under Mary’s power of attorney.
For the son, the calculation is different. He has a vested financial interest in Mary’s assets. He stands to gain from the proper handling of Mary’s affairs. And, he has fewer people to satisfy with his job – he need only satisfy his brother.
Armed with both the doctor’s note specifying Mary’s inability to handle her own affairs and Sue’s signed declination to serve, the son can start his job as agent for his mom under her power of attorney.
An agent under a power of attorney may properly pay for an attorney to adviser her on her role. Indeed, the agent should do this as a first act when stepping into the role. But, even before that, the agent should consider whether or not to decline to act in favor of another who might be better positioned to take over the role and all it entails. Of course, this presupposes there is an alternate named. One final note: always name an alternate on your power of attorney.
__________
The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual or entity. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
