A power of attorney is a legal instrument that authorizes one individual to represent or act on behalf of another person. The person who creates the document and authorizes the other individual to act on their behalf is known as the “principal.” In some jurisdictions, the principal may also be referred to as the grantor or donor of power. 

As for the individual who gains the authority to act on the principal’s behalf, they are called an “agent” or the “attorney-in-fact.” It should be noted that despite the name of this party, the designated individual does not have to be an actual attorney. The individual can be anyone whom the principal appoints in the power of attorney document.

There are many different kinds of power of attorney arrangements. The requirements for the document will depend on the type of tasks that the agent or attorney-in-fact is being asked to perform. For instance, a power of attorney can be used to authorize an agent to make decisions about the medical treatment that a principal receives, to make decisions about a business on the principal’s behalf, and to manage various other private or legal affairs.

Thus, it follows that a “financial power of attorney” is someone who has been given the authority to handle a principal’s financial matters. The scope of this arrangement may vary in accordance with the principal’s individual needs. Regardless of what those needs are, the principal must include the details when drafting the power of attorney document. 

In addition, within this type of power of attorney relationship, the agent or attorney-in-fact will also have to comply with a number of different standards of care when performing their duties. These requirements may be found in the laws of the jurisdiction where the document is being executed and in the terms of the power of attorney document.  

Given the detail-oriented nature of financial power of attorney documents, it may be in your best interest to contact a local estate lawyer to help you draft one. A lawyer can ensure that the document meets all standard legal requirements and that it contains all of the conditions you desire as well as those which suit your needs.

What Can Be Authorized through a Financial Power of Attorney?

Similar to a contract or a will, the principal must be of sound mind to create and execute a financial power of attorney document. Once the instrument is finalized both the principal and agent will need to acknowledge their individual duties as well as sign the document in front of a notary public. 

The agent must be careful in performing only those duties which are listed in the financial power of attorney document. Thus, a financial power of attorney authorizes the acts that the principal includes in the document. Any actions the agent takes that fall outside the parameters of those duties or acts listed in the document will immediately subject them to liability. 

In most cases, the principal will have control over exactly what actions their agent can or cannot take. Some examples of activities that a typical financial power of attorney instrument authorizes an agent or attorney-in-fact to do include the following

  • Pay the principal’s taxes, bills, medical costs, and various other expenses; 
  • Manage any real estate property that the principal owns;
  • Grants the agent access to the principal’s financial statements and bank accounts;
  • Allows the agent to make investments and investment decisions on the principal’s behalf; 
  • Transfer or sell the principal’s assets;
  • Purchase different kinds of insurance on behalf of the principal;
  • Operate the principal’s small business;
  • Hire individuals to represent the principal in various matters; and/or
  • Gives the agent the right to collect retirement benefits on behalf of the principal.

Of course, whether or not all of the acts in the above list need to be performed, will be contingent on the contents of the financial power of attorney instrument. Again, such documents are created in accordance with the needs of each individual principal. Thus, some agents may not be authorized to do all of these activities. 

For instance, the principal may only authorize the agent to carry out one specific task. If this is the case, once that single task is complete, the agent’s authority will automatically terminate. On the other hand, it is possible that an agent will be given a wider range of authority over the principal’s financial responsibilities since the scope of this arrangement has the potential to be very broad. 

How Long Does a Financial Power of Attorney Last?

The time period for which an agent retains financial power of attorney will depend on both the needs of the principal and what is included in the document. Thus, the length of a financial power of attorney authorization can vary by each individual arrangement. 

For instance, in most cases, an agent’s authority will typically start as soon as the financial power of attorney is signed by both parties. In other instances, a document may specify that an agent’s authority will not begin until certain conditions have occurred. For example, like if the principal becomes mentally or physically incapacitated. Documents that contain such conditions are referred to as a “springing power of attorney”. 

In addition, there are a number of different ways to terminate a financial power of attorney relationship. As discussed above, one way to end this type of authorization is to complete the tasks specified in the document. In situations where the agent is only granted the authority to complete a single task, then the relationship will terminate once the task is done. This sort of arrangement is called a “limited power of attorney”.

In contrast, a “durable power of attorney” arrangement can last indefinitely. This means that the agent will be able to act on the principal’s behalf until either the principal dies or indicates their desire to terminate the arrangement. 

Therefore, the principal must think carefully about their individual needs and circumstances before choosing the conditions they want to include in their financial power of attorney instrument. Otherwise, they could mistakenly authorize an agent to control and make decisions about their finances for the remainder of their life. 

What If I Have a Dispute with My Financial Agent?

It is important to keep in mind that a financial power of attorney arrangement essentially authorizes the agent to exercise their own discretion and judgment when making decisions on behalf of the principal. Although the principal may give the agent a broad range of authority, the overall guiding rule that all agents should follow is that they must act in the best interests of the principal.

An agent will also need to comply with certain laws as well as use good faith judgment when acting on a principal’s behalf. In situations where it becomes clear that the agent did not act in the principal’s best interest, then the principal may be able to file a lawsuit against the agent and recover damages. Such damages may include any loss of profits that the agent may have caused. 

Some common examples of the types of disputes that may arise in a financial power of attorney relationship include:

  • When an agent acts outside the scope of their authority;
  • If the agent fails to exercise good business judgment when investing funds or making investment decisions on the principal’s behalf;
  • When an agent combines their own personal funds with those of the principal’s (i.e., commingling assets); and/or
  • If the agent performs an act that violates the law, the arrangement, or executes an illegal transaction.

In some cases, the principal may be able to recover punitive damages if their agent acted with malicious intent or in reckless disregard of the principal’s assets. The principal should speak to an attorney as soon as they believe that their agent has done something wrong. Generally speaking, the quicker the principal resolves the issue, the easier it will be to recover damages and to stop the agent from causing further financial losses.

Do I Need a Lawyer for Assistance with a Financial Power of Attorney?

If you need assistance drafting a financial power of attorney instrument or have a dispute involving an agent in such an arrangement, then it may be in your best interest to hire a local estate lawyer as soon as possible. An experienced estate lawyer will be able to help you create a power of attorney document that caters to your specific needs. 

Your lawyer can also explain which rights you have and which rights belong to your agent under your specific financial power of attorney arrangement. In addition, should a dispute arise between you and your designated agent, your lawyer can defend you and help protect your financial interests by providing legal representation in court.