Almost every day a client requests that I draft a power of attorney for them. In most cases, the client chooses a family member (their spouse or a child) to be their power of attorney agent. Rarely does the client ask me about the liability or responsibility that the power of attorney agent is assuming.
The fact of the matter is, if power of attorney agents understood the potential liability and tremendous responsibility they were assuming by serving as a power of attorney agent, few people would be willing to serve. The same, however, could be said about being a parent. If people knew all the responsibility and potential liability there was to being a parent, the world would be a much lonelier place.
A power of attorney is a document that permits one person, called an “agent” or “attorney in fact,” to make financial decisions for another person, called the “principal.” A power of attorney is only effective when the principal is alive. Upon the death of the principal, the power of attorney document ceases to be effective. At that point, the executor of the person’s estate would be in charge of their finances.
An agent owes the duty of utmost duty of care to the principal with respect to financial matters. In other words, if the agent makes a poor decision with regard to the finances of the principal, the agent can be held liable for that poor decision.
Absent such a poor decision, the agent bears no personal liability for the debts of the principal. Stated differently, an agent is not liable for the principal’s debts.
With that said, some creditors may sue the agent for the principal’s debts. For instance, in recent years, I have seen nursing facilities sue the agent for the principal’s nursing home bill.
Typically, when a person enters a nursing home, the nursing home provides an admissions agreement to the potential resident. Since the potential resident is frequently in poor health, the nursing home provides this agreement to the resident’s representative, the power of attorney agent.
The agent then signs the admissions agreement, including the inevitable sections entitled “responsible party” or some similar designation, and if the resident is unable to pay and if Medicaid refuses to pay for the resident for any number of reasons, the nursing home will sue the resident and the power of attorney agent under the “responsible party” language of the admissions agreement.
Will the nursing home prevail in the end? Though I have no direct knowledge, I’m sure the lawsuit alone may lead to a settlement with the nursing home, so in that sense, the nursing home won.
Another issue for a power of attorney agent concerns other family members or friends of the principal. In many cases, other family members or friends of the principal will be suspicious of the actions of the agent. Is the agent taking money for himself? Why did mom pick son A to be her agent over me, son B?
Handling a principal’s financial affairs can bring a tremendous amount of scrutiny to the agent. Interested parties, such as family members, can request the agent to produce an accounting of the principal’s finances if the principal is mentally incapacitated.
All of this is aside from the fact that being an agent is a lot of work. It’s a lot of work to handle another person’s financial affairs and to handle those affairs with the utmost care.
Furthermore, in most cases, the agent does all this work for free. Unless a power of attorney specifically says that the agent can be compensated for his time, he cannot be compensated, unless the agent goes to court to obtain an order that says he can be compensated. Most powers of attorney documents fail to address the compensation issue, so the agent serves without compensation.
So, why would anyone serve as an agent? Why would anyone serve as a parent? Because they love the person. In most cases, it is a lot of unpaid hard work that only exposes the agent to accusations of abuse (often false), but most agents serve because they are helping a frail family member or friend whom they love.