Power of Attorney Liability – Overlooked Risks

by Neal Frankle, CFP ®

As the title of the post states, Power of Attorney liability is much greater than you think. And what’s more important is that your liability as Power of Attorney emanates from sources you least expect as you’ll see. That’s right. Problems of liability can blindside you and put you in a world of hurt.

Before we get to that, let’s define a few terms. The person who creates and provides you with the Power of Attorney is called the “grantor”, “principal” or “donor”. If you are given (and except) a Power of Attorney, you become the “agent” of the “grantor”.

What can an Agent do?

As “agent” you can enter into business transactions as defined by the general or limited power of attorney. Usually that means you can buy and sell real estate, take on mortgages, sign contracts and obligate the “grantor” in many other ways. If the “grantor” doesn’t complete her side of the bargain, she will be held responsible, not you. This is very similar to how a trustee in a trust works and is the reason some people turn to professional trustees in certain circumstances .

Sure there are some cases where creditors can come after you. But that can only happen if you:

  • Agree to be personally liable by signing an additional agreement.
  • Are liable because of the relationship you have with the person (and this has nothing to do with you being the “agent”).
  • Act negligently, fraudulently or illegally.
  • Do something that you are not authorized to do by the Power of Attorney document.

Are you seeing the thread here? The common theme is that a Power of Attorney isn’t personally liable for the debts of the grantor unless she does something wrong or silly or both.

I recently came across a case where a POA was asked to incur liability she didn’t have to. Here’s what happened. Once the woman was appointed Power of Attorney for her father, she contacted her dad’s bank. The bank wouldn’t give her information on her father’s loan until she co-signed her father’s mortgage. Outrageous.

The bank acted illegally of course. They had to provide information to Pam because she was the legal agent for her father. She didn’t need to take on any additional liability. Once this was brought to the attention of the bank, they started to behave.

Be careful of tricks like this. If you present POA documents to any financial institution they usually must honor them if they are valid. You won’t need to take on other people’s liability to act as POA.

At the same time, please understand that not every financial institution will consider your Power of Attorney valid. Most of these companies have their own Power of Attorney documents drawn up by their own attorneys. Sadly, your best bet is to have a valid document on file from each financial firm you deal with. I know this is a pain in the arse but it is worth it. People often overlook this step and if they do so it can be a tremendous headache and fatal flaw in estate planning.

Let’s get back to the bottom line and here it is. You probably won’t have to worry about personal liability from creditors in most cases as POA. But that doesn’t mean you can forget about the problem of liability. You still have plenty of it. And it comes from the place you least expect it – the grantor.

Why?

Because the “agent” has a “fiduciary responsibility” to act on behalf of the grantor. That means you have to work in the best interests of the grantor and not your own. And that means if the grantor thinks (and can prove) that you acted outside your duty, she (or her heirs) can and will sue you.

How can you minimize your risk as Power of Attorney?

First, never do anything silly like use the grantor’s assets for your own use or benefit. That goes without saying. At the same time, never commingle your personal assets with assets which are entrusted to you. This gives the appearance of impropriety and it can be a huge problem even if you do nothing wrong. Finally, you should never co-sign a loan for the grantor. This is even more dangerous than commingling funds. Don’t do it.

Maybe the best way to avoid Power of Attorney liability is refuse to accept the offer when someone gives it to you. That would put all your fears to rest. Sometimes this approach isn’t practical.

Have you acted as a Power of Attorney? Did you run into any problems? What steps did you take to minimize your risks?

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{ 5 comments… read them below or add one }

rich July 14, 2014 at 8:22 AM

I have POA of my mother in both Michigan and Florida. We live together in Michigan because of the death of my father. We are trying to sell their mobole home in Florida thru a realtor. The realtor tripped and fell on the property and is seeking compensation. Can she file a claim against my assets, the POA?

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Neal Frankle, CFP ® July 15, 2014 at 11:42 PM

I am not an attorney and you should seek out the advice of a qualified lawyer. However, typically the POA is not liable. Having said that, is she claiming that you failed to do something? Also, are you listed as an owner of the asset in addition to having the POA for your mother?

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Eugene May 14, 2014 at 11:59 AM

Can an agent (with rights under POA) be liable if the principle has an auto accident and hurts someone. Thus could the person that is hurt win a settlement against not only the principle but also the agent.

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Lauri Hyde April 17, 2013 at 1:58 PM

Hello,

I hope you can help me. I am sort of a secondary caregiver for an elderly woman who is very likely has Alzheimer’s (haven’t verified yet) and is not willing to give POA to anybody out of fear that I or anybody will put her in a nursing home, or maybe take her money, I don’t know. I also have to be able to receive medical information on odd occasions or request things that I can’t get without a POA. For example, she has funds in several banks, but because she can’t comprehend a telephone conversation due to hearing and cognition problems. This means that she can’t get bank balances, she is also in a wheelchair and in a board and care, one of six patients. She is in a residential area that is just above the business district but on a HILL so I can’t possibly push her in a manual wheelchair without risk of her falling out of the chair pr wrecking my own back and neck. To further complicate matters, she can’t get into a passenger car, and I can’t lift her wheelchair, so that means I have to go with her on Access Paratransit and it becomes military maneuvers to accomplish the slightest task. This is also for medical appts or any errand. To make matters worse, she is regressing to the point that she can barely hold a pen to sign her name, and so now checks don’t make sense, and because she can’t get to an ATM machine or a bank on her own, she is now bouncing checks. She also gets interest dividend checks mailed to her that she has no ability to cash without assistance. AND the only relative that she has locally is her son, whom she is basically estranged from, yet she still has all her possessions in her apt just about half a mile away, which apt building is owned by her son, and she is paying him rent on top of the rent she pays the board and care. So this jerk is taking over $450 a month from his own flesh and blood, all the while she has been in the board and care and paying them too. He just shows up to collect his rent check. What a NICE guy! So this is a mess. I can’t force her to give me or anyone POA and I am wondering what the hell to do, here? Marie used to take care of my now deceased mother for many years and I feel like I need to return the favor. Another complication is that I may be relocating to CT in a few months, depending on my husband’s working situation. I live in Glendale CA, and Marie lives about 15 min away in Eagle Rock CA. I hate to dump all of this on you but I need some suggestions sooner than later. I don’t know what will happen to her if I just walk away and leave her to her fate? Please help.

Thank you,

Lauri Hyde

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Neal Frankle April 19, 2013 at 8:47 AM

Lauri, sorry you are going thru all this. This info on

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