When counseling clients with large families about Powers of Attorney, I frequently hear something to the effect of “well I want (insert name) to serve as my agent because I want him to feel included and loved.” While this extension of affection is heartwarming, it may not be the best reason for appointing a particular person as your legal representative. Here is why.
When you sign a Power of Attorney, the person you name to be your “attorney-in-fact” or “agent” is entrusted with certain legal obligations known as fiduciary duties to you. This is known as the Principal-Agent relationship. The Principal is the person signing the Power of Attorney. Among those duties are the Duty of Care, the Duty of Loyalty and in some cases, the Duty to Account. While there are other duties owed to the Principal, the three just mentioned are some of the most important. While I could write pages on these topics, this post is intended to provide a general overview of the subject. For specific advice if you are named as an Agent, consult an elder law attorney.
I’d first like to explain the Duty of Loyalty. The Agent is expected to handle the Principal’s affairs honestly and in the interest of the Principal. Most often, issues concerning a violation (potential breach) of the Duty of Loyalty involve misappropriating or mishandling the Principal’s money. In the realm of criminal law, the legal consequence may be a charge of embezzlement, among other things. On the civil side, the Principal may pursue a claim against his or her Agent for breach of the Duty of Loyalty if the agent acts in a way that betrays the trust of the Principal by either stealing money/property or creating a situation in which theft is likely to occur. To avoid these pitfalls, the Agent should always be prepared to provide an accounting to the Principal, even if the Power of Attorney doesn’t explicitly require it. The financial accounts of the Principal should be kept separated from the accounts of the Agent. In general, too, the Principal’s expenses should be handled separately from the Agent’s personal expenses.
Under the Duty of Care, an Agent is expected to act as a reasonable agent under the circumstances. What does this mean, exactly? Violations of the Duty of Care can occur if the Agent is negligent in investing, or careless about the supervision of property or the tax consequences of decisions. Again, maintaining open lines of communication with the Principal, when possible, as well as having an idea of the expectations of the Principal are crucial.
Going back to my original example, can you see why it may not be a great idea to appoint someone simply out of love and affection? Naming someone as your agent under a legal document should not be used to demonstrate love, but it may be used to demonstrate trust when the appointment is made with due care and consideration. Ideally, you’d want to select people who are trustworthy, who can communicate effectively, and who can make tough, yet informed decisions in your best interest. These topics and more should be discussed with your attorney prior to naming someone to serve as your Agent. The attorneys at Fink Rosner Ershow-Levenberg Marinaro Marinaro, LLC can guide you through these questions and more. Set up a consultation today by calling (732) 382-6070.