What are the obligations of financial proxies?

Has a loved one named you their financial power of attorney? Are you ready to take on all the responsibilities that this entails? Hopefully you won’t be called to action anytime soon, but with the ongoing coronavirus pandemic, it’s something to think about.

A power of attorney is a document that allows someone (the “mandatary” or “mandatary”) to act on behalf of the grantor. It normally allows the de facto lawyer to pay the principal’s bills, access his accounts, pay his taxes, buy and sell investments or real estate. Essentially, the attorney steps into the shoes of the principal and is able to act for the principal in all matters described in the document.

These responsibilities can seem daunting and it’s natural to feel a little overwhelmed at first — a bit like when we had our first child and the hospital staff left us alone with the baby for the first time: What shall we do now?!

This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC or FINRA.

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Step 1: Don’t panic. Start reading.

Read your power of attorney document and understand what the person you are caring for (the “grantor”) has given you the power to manage on their behalf. Many powers of attorney also include information directed to the attorney (usually at the end of the document) that explains the legal obligations they owe the grantor.

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Step 2: Determine what you are responsible for.

Make a list of the principal’s assets and liabilities. If the person you are caring for is organized, it will be easy. Otherwise, you will need to find:

  • Brokerage accounts
  • Bank accounts
  • 401(k)s/IRAs/403(b)s
  • Mortgage bills
  • Tax accounts
  • Utility bills
  • Insurance bills
  • Phone, cable, internet bills

It’s also wise to look at your manager’s spending habits, to get an idea of ​​any recurring expenses. Monitoring your manager’s mail for a month will help you know where the money is going and coming from. Also try to find where they keep their bills, especially their tax bills. And if your principal is over 72 and has authorized you to manage his pension plan, don’t forget to make the required minimum distributions.

Please note, if your principal manages his finances online, you will need to contact the institutions concerned and establish that you have a power of attorney, so that you can have access to these accounts.

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Step 3: Protect the principal’s assets.

Make sure the manager’s house is secure. Check it for leaks and any damage that needs to be repaired. It may also be useful to record a video inventory of the residence. If the manager isn’t occupying the house while incapacitated, turn down the heat (but don’t let the pipes freeze). If you’re not worried about pipes freezing, you can turn off the lights and the gas. Is mold a problem in the area? If so, you better keep the air conditioning on to avoid a costly infestation. Is dry heat a problem, like in the desert? Desert dwellers have tricks for sealing a house to prevent wood floors from cracking and other damage from dehumidification. If you’re not from around, ask the neighbors what to do.

If it appears that your principal will be incapacitated for a long time, consider canceling the telephone and any newspaper subscriptions. Consider putting their car on chocks and draining the oil.

Keep an eye out for potential poachers! It’s a sad reality, but sometimes the family of an incapacitated person seizes property and claims that it was promised to them (or that it always belonged to them). It may be prudent to change the locks on the manager’s house. Also note that an unoccupied residence may be noticed by squatters, so visit the location weekly if no one lives there.

If you have power over the principal’s investments and expect the inability to continue over the long term, carefully review brokerage statements for high-risk positions you do not understand, such as options, sale and purchase or raw materials. Seek advice on liquidating positions that you don’t have the expertise to handle.

If you’re not local to the main, you’re going to be inconvenienced; this is something to consider when establishing your own power of attorney. You can delegate many of your tasks to a property manager, such as checking out the house and picking up the mail. However, you should take at least one trip yourself to ensure you have a good understanding of the situation. I wouldn’t hesitate to talk to the neighbors and have them watch things; they don’t want squatters or crimes on the side any more than you do.

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Step 4: Pay bills if necessary.

Be sure to review your principal’s bills and credit card statements for possible fraud. Consider temporarily suspending credit cards that you will not be using in the principal’s name. Remember though that some people have monthly bills paid automatically by credit card. If so, be sure to make alternate arrangements to pay those bills if you suspend a card.

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Step 5: Pay the taxes.

Many powers of attorney grant the attorney the power to pay the principal’s taxes. If so, you will be responsible for filing and paying taxes for the lifetime of the principal. If the grantor dies, however, the grantor’s executor is responsible for preparing final taxes. However, you must be ready to help if necessary.

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Step 6: Estate planning.

If the person you’re caring for doesn’t have a trust, you should consider creating one for them (assuming the power of attorney gives you that power). This is especially important if the director is seriously ill. Speak to a qualified attorney for assistance. Agents cannot write a will for their grantor, but estate planning during the grantor’s lifetime will often reduce costs later.

If your director is in a nursing home that is paid for by Medicaid (or a similar state insurance program), then it is extremely important that you speak with an elder law attorney as soon as possible. You may be able to spare the grantor’s estate at least some of the cost of their care.

If you haven’t spoken with an elder law attorney, the best advice I can give you is “don’t sell the house.” As long as someone has told Medicaid that the grantor intends to return home later, you won’t 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 ask you to spend that money on the person’s health care. Try to avoid this.

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Step 7: Keep excellent records.

Track all the expenses you make and all the actions you take on behalf of your principal. Not only is diligent record keeping required, but it will also help you demonstrate that you have met your obligations and acted in the best interest of the principal. It will also be important that you receive reimbursement for expenses and (if the power of attorney provides for this) time spent acting as agent.

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Step 8: Act in the best interest of the principal.

If you know what the grantor expects you to do with their property, try to honor those expectations when reasonably possible. If you don’t know the principal’s expectations, always act with their best interests in mind.

Written by Jeffrey Gaffney, 25-year-old lawyer and retired Navy captain. A graduate of the University of San Diego Law School, he began his practice helping injured investors recover from unscrupulous stockbrokers. He is an arbitrator for the New York Stock Exchange, the Pacific Stock Exchange and FINRA. Gaffney is also a lawyer at FreeWill, a digital estate planning platform. After years of working in securities, he focused on trusts and estates as a way to further protect people and their future.

Lawyer, Law Office of Jeffrey Gaffney

Jeffrey Gaffney is a 25-year-old lawyer and retired sea captain. A graduate of the University of San Diego Law School, he began his practice helping injured investors recover from unscrupulous stockbrokers. He is an arbitrator for the New York Stock Exchange, the Pacific Stock Exchange and FINRA. Gaffney is also a lawyer at FreeWill, a digital estate planning platform. After years of working in securities, he focused on trusts and estates as a way to further protect people and their future.

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