I just got appointed agent under a financial power of attorney. What do I need to do next?
A financial power of attorney is a document allowing someone (the “attorney-in-fact” or “agent”) to act on the principal's behalf. It normally allows the attorney-in-fact to pay the principal's bills, access his accounts, pay his taxes, buy and sell investments or even real estate. Essentially, the attorney-in-fact steps into the shoes of the principal and is able to act for the principal in all matters as described in the document.
These responsibilities may sound daunting, and it's only natural to feel a little overwhelmed at first — much like when we had our first child and the hospital staff left us alone with the baby for the first time: What do we do now?!
Step 1: Don't panic. Do start reading.
Step 2: Figure out what you are in charge of.
- Brokerage accounts
- Bank accounts
- Mortgage bills
- Tax bills
- Utility bills
- Insurance bills
- Phone, cable, internet bills
It's also wise to review your principal's spending patterns, to get a sense of any recurring expenses. Monitoring your principal's mail for a month will help you to figure out where the money comes and goes. Also try to find where they keep their bills, especially their tax bills. And if your principal is over age 72 and has granted you authority to manage their retirement plan, don't forget to make any required minimum distributions.
Note, if your principal manages his or her finances online, then you will need to contact the relevant institutions and establish that you have power of attorney, so that you can have access to these accounts.
Step 3: Protect the principal's assets.
If it appears your principal will be incapacitated for a long time, consider canceling the phone and any newspaper subscriptions. Consider putting their car on blocks and draining the oil.
Keep an eye out for potential poachers! It's a sad fact, but sometimes the family of an incapacitated person will take property and claim that it had been promised to them (or that it belonged to them all along). It may be prudent to change the locks on the principal's home. Also note that an unoccupied residence may be noticed by squatters, so visit the location every week if no one lives there.
If you have power over the principal's investments and foresee the incapacitation continuing for the long term, take a close look at any brokerage statements for high-risk positions that you don't understand, such as options, puts and calls, or commodities. Seek advice on liquidating positions that you don't have the expertise to handle.
If you are not local to the principal, you are going to be inconvenienced; this is something to consider when making out your own power of attorney. You can delegate many of your duties to a property manager, such as checking on the house and fetching the mail. However, you should make at least one trip yourself to make sure you have a good grasp of the situation. I would not hesitate to talk to the neighbors and have them keep an eye on things; they don't want squatters or crimes next door any more than you do.
Step 5: Pay the taxes.
Step 6: Estate planning.
If your principal is in a nursing home that it is being paid for by Medicaid (or a similar state insurance program), then it is extremely important you speak with an elder law attorney as soon as possible. You may be able to save the principal's estate at least some of the costs of their care.
If you have not spoken with an elder law attorney, then the best advice I can give is “don't sell the house.” As long as someone told Medicaid that the principal intended to move back home later, then you will not have to sell the house to pay the bills. If – on the other hand - you sell the house and now have money, the government will require you to spend that money on the person's health care. Try to avoid this.
Step 7: Keep excellent records.
Step 8: Act in the principal's best interest.
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This article was provided by Jeffrey Gaffney, and brought to you by the Ronald J. Fichera Law Firm, where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us today!
This article was written by and presents the views of our contributing adviser. This is not tax advice and should not be construed as such. Please seek professional tax services for more information and advice that will apply to your specific tax situation.