As your parents age, they may start to think about who will handle their affairs if they are unable to do so. They may wish to assign someone the legal authority to act on their behalf if they become incapacitated. One option is to assign power of attorney to a person of trust. The power of attorney allows the person named to make decisions and take care of financial and other matters. Many people wonder if there is a downside to being a power of attorney.
What is a Power of Attorney?
A power of attorney (POA) is a document that gives someone legal authority to act on your behalf. The person named becomes an agent and is thereby legally able to make decisions and take actions on behalf of the principal. Legal authority may be broad or limited and may allow decisions regarding finances, medical treatment, and/or property. A person names and puts a power of attorney in place ahead of when it is needed. A durable power of attorney goes into effect if the principal becomes unable to handle his or her own personal affairs.
Fiduciary Duty
A person who is appointed as power of attorney has a fiduciary duty to act ethically and in the best interest of the principal. Specifically, the fiduciary responsibilities include duties of care, loyalty, good faith, confidentiality, prudence, and a duty to disclose. There may be consequences for breaching fiduciary duty. A person with power of attorney must make important decisions that could have a long-term impact on the principal and his or her family. The principal should discuss the details of their personal affairs with the person appointed power of attorney before they sign the documents.
Potential Disadvantages of Being a Power of Attorney
There are some potential disadvantages of being a power of attorney. The POA must be able to make serious choices that could involve the person’s health and estate. If you breach your duty, you could owe the principal compensation for damages. The principal could sue you if you did not act in their best interest. A POA could be held responsible if they sign an agreement that could hold them financially liable. This can occur, for example, if you co-sign on debts. You could also be liable if you jointly own bank accounts or other accounts with the principal. If the principal is unable to repay the debt, you would have to repay it yourself.
As a POA, you must take care to act responsibly at all times. You must keep in mind that the principal may be able to take legal action against you if you do something wrong or illegal. The job of POA is a very important one and one that you cannot take lightly. It is often in the best interest of a POA to seek legal guidance, particularly in complex situations. To learn more about the power of attorney, contact us online or at (608) 784-8310.