A power of attorney can be an effective estate planning tool. This document allows a person, called the principal, to designate another person, called an agent, to make financial decisions for him or her.
The principal may choose to create a durable power of attorney which means that the document remains in effect if he or she becomes incapacitated and is unable to make decisions.
It’s important for the principal to choose someone he or she trusts to act as an agent because the agent has significant decision-making authority. These decisions may relate to real property, stocks and bonds, banking, business, insurance and benefits, among others.
When the agent accepts an appointment under the power of attorney, he or she has a fiduciary relationship with the principal. This means that he or she must act in good faith, not act outside of the authority granted by the power of attorney and must act loyally and in the principal’s best interest.
The agent also is responsible for keeping a record of the decisions made on behalf of the principal and may need to provide an accounting of the principal’s property, disbursements, balances and liabilities.
If the agent acts outside of the authority granted by the power of attorney, he or she may be liable for damages or may be subject to penalties.
The power of attorney remains in place until the principal passes away, revokes the document, a guardian is appointed to the principal’s estate or a court orders the agent’s removal.
An experienced attorney can answer questions about power of attorney documents and offer advice about related estate planning matters.