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When someone grants you power of attorney (POA), they’re entrusting you with significant responsibility over their financial affairs. One common concern for those acting as an agent under a POA is whether they can be held personally liable for the debts of the person they represent. To clarify this concern, let’s take a closer look at the relationship between powers of attorney and debt liability, helping you understand your legal obligations and protections.
What is a power of attorney?
A power of attorney is a legal document that allows an individual (the principal) to appoint another person (the agent or attorney-in-fact) to make decisions on their behalf. These decisions can involve:
- Financial matters.
- Healthcare choices.
- Property management.
- Business dealings.
- Tax filings.
Powers of attorney can be limited to specific tasks or can be broad in scope, depending on how they’re drafted. They can also be temporary or durable, with durable POAs remaining in effect even if the principal becomes incapacitated.
Do you have to be a lawyer to become a power of attorney?
No, you do not have to be a lawyer to become someone’s power of attorney. Anyone can serve as an agent under a power of attorney document as long as they meet these basic requirements:
- You must be an adult (typically 18 years or older).
- You must be mentally competent.
- You must be willing to accept the responsibility.
The term “power of attorney” can be a bit confusing because it contains the word “attorney,” but it refers to the legal authority being granted, not to the profession of the person receiving that authority. The person appointed is called an “agent” or “attorney-in-fact,” but this doesn’t mean they need legal training.
The fiduciary responsibility of a POA agent
As an agent acting under a power of attorney, you have what’s called a “fiduciary duty” to the principal. This means you must:
- Act in the principal’s best interests, not your own.
- Manage the principal’s affairs honestly and prudently.
- Keep the principal’s property separate from your own.
- Keep detailed records of all transactions.
- Avoid conflicts of interest.
This fiduciary relationship is the foundation of understanding your liability as a POA.
Are you personally liable for the principal’s debts?
The short answer: Generally, no.
When acting properly as an agent under a power of attorney, you are not personally responsible for the debts of the principal. When you sign documents as a POA, you are signing as the representative of the principal, not in your personal capacity. The proper way to sign documents is:
[Principal’s Name], by [Your Name], Attorney-in-Fact
This signature format makes it clear you are acting as the principal’s agent and not in your personal capacity.
When might a POA agent face personal liability?
While the general rule protects agents from personal liability, there are important exceptions:
- Exceeding your authority
If you take actions that go beyond the scope of authority granted in the POA document, you could be personally liable for resulting damages or debts.
- Negligence or breach of fiduciary duty
If you fail to exercise reasonable care in managing the principal’s affairs or breach your fiduciary duty, you could face personal liability. Examples include:
- Commingling the principal’s funds with your own.
- Using the principal’s assets for your personal benefit.
- Making risky investments inconsistent with the principal’s best interests.
- Failing to pay the principal’s bills when sufficient funds are available.
- Fraud or misrepresentation
If you intentionally misrepresent yourself as having authority you don’t actually possess, or if you engage in fraudulent activities, you can be held personally liable.
- Personal guarantees
If you sign a contract or loan agreement as a personal guarantor (rather than signing properly as the agent), you could be personally liable for that obligation.
Managing existing debts
As a POA agent, you’re responsible for managing the principal’s existing debts using their assets. This includes:
- Paying bills on time.
- Communicating with creditors.
- Ensuring proper application of payments.
- Maintaining records of all transactions.
New debt obligations
When it comes to taking on new debt on behalf of the principal:
- Only do so if explicitly authorized in the POA document.
- Ensure any new debt serves the principal’s best interests.
- Document why the debt was necessary.
- Sign all documents properly as the agent, not in your personal capacity.
If the principal’s assets are insufficient
A challenging situation arises when the principal doesn’t have enough assets to cover their debts. In this case:
- You are not required to use your personal funds to pay the principal’s debts.
- Consider working with creditors on payment plans or settlements.
- If appropriate, consult with an elder law or bankruptcy attorney.
- Keep detailed records of all communications with creditors.
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End-of-life considerations
If the principal passes away:
- Your authority under the POA typically ends at death.
- The principal’s estate becomes responsible for remaining debts.
- The estate executor or administrator takes over debt management.
- Creditors must make claims against the estate, not against you personally.
Protecting yourself as a POA agent
To minimize your risk of personal liability while serving as a POA agent:
- Understand the scope of your authority. Read the POA document carefully and consult an attorney if you have questions.
- Keep meticulous records. Document all financial transactions, including receipts, bank statements, and the reasoning behind major decisions.
- Maintain separate accounts. Never mix the principal’s funds with your own.
- Sign documents properly. Always sign in your capacity as agent, not personally.
- Communicate openly. Keep the principal informed (if capable) and relevant family members updated about significant financial decisions.
- Consider liability insurance. Some insurance companies offer coverage specifically for fiduciaries.
- Consult professionals when needed. Don’t hesitate to work with attorneys, accountants, or financial advisors for complex matters.
State-specific considerations
POA laws vary by state, with some jurisdictions offering more protections to agents than others. For example:
- Some states have adopted the Uniform Power of Attorney Act, which provides specific protections for agents acting in good faith.
- Other states may have more stringent requirements for POA agents.
- Certain states require specific language in POA documents to grant authority for particular transactions.
It’s important to understand the laws of the state where the POA was created and where you’ll be exercising your authority.
The bottom line
Being named as someone’s power of attorney agent is both an honor and a significant responsibility. While you generally won’t be personally liable for the principal’s debts when acting properly within your authority, you must still exercise care and diligence in managing their affairs.
By understanding your legal obligations, maintaining proper documentation, and seeking professional guidance when needed, you can fulfill your role as a POA agent while protecting yourself from personal liability.
There’s always JG Wentworth…
If you have $10,000 or more in unsecured debt there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
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- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
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* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.