At some point in life, many of us will sign a “Power of Attorney” (POA) and designate one of our children to be our “attorney in fact.” Or, perhaps we have been named as attorney in fact for our own parents. Being designated as an attorney in fact means that you have the authority to transact business for the person who appointed you (the principal).
The powers granted are generally very broad and would include signing checks, transferring money between accounts, applying for benefits, and even buying or selling real estate. The use of a POA can be very convenient and bring great relief to the principal. However, it can also be misused and abused, making it a source of suspicion and resentment. It is not uncommon for the principal or the POA to be concerned about what protections are in place regarding this new role.
You don’t have to look far to find a story about a child who misused their power and spent their parents’ money in ways that benefitted the child but not the parent. Misuse and abuse can occur with or without POA powers, but the POA can make it easier. However, remember that airline crashes make headlines while the thousands of routine flights that occur daily do not. The same reality applies to the use of POAs: thousands of people use POAs, make their life easier, and never have any problems with misuse or abuse.
Indiana laws address the potential for misuse or abuse by a) requiring an attorney in fact to act for the benefit of the principal and b) establishing a fiduciary duty from the attorney in fact to the principal (IC 30-5-6-2 and 3). What is a fiduciary duty? It is a duty to act in the best interests of the principal, not in your own best interests. Next, Indiana laws require that an attorney in fact maintain records of all actions taken on behalf of the principal for a period of six years. Finally, Indiana laws allow the principal or any child of the principal to request a written accounting which the attorney in fact must provide within 60 days (IC 30-5-6-4).
What happens if the written accounting reveals improper actions? The attorney in fact is liable to the principal for damages and attorneys’ fees (IC 30-5-9-11). For most people, the potential embarrassment and lost trust is a powerful incentive to act properly, but the legal burden is there if needed.
Acting as an attorney in fact is an obligation that is not to be taken lightly. While congratulations are in order for the fact that the principal places his or her trust in you, condolences are in order for the obligations you are accepting when you use these powers. Taking over someone’s financial affairs and getting their paperwork in order can be time consuming and frustrating. The more open you can be with the entire family about what is happening, and the better you are able to establish expectations, the less likely that suspicion and resentment will build.
ABOUT THE AUTHOR – andy gutwein
Andy Gutwein is co-founder and an attorney at Gutwein Law. His practice focuses primarily on estate and succession planning and administration. Prior to earning his J.D. from The George Washington University in Washington, DC, Andy obtained a BS in Economics, Honors Program, from Purdue University. He is currently serving on the Board of Directors of Westminster Village of West Lafayette, Lafayette Police Foundation Board of Directors, and Community Foundation Fund Devleopment Committee.