A power of attorney is an immense responsibility, as it allows you to make decisions that bind a principal and his assets legally and financially. Powers of attorney are normally used when the principal is unavailable or unable to take action on his own. When trying to fulfill your responsibility as an agent, it is important to be aware of what your responsibility is and how to carry it out. If you fail to carry out your responsibilities appropriately, you can be sued by the principal for monetary damages.
Power of Attorney Document
Any action you take as an agent should begin by looking at the power of attorney document itself. A well drafted power of attorney identifies in which areas you are permitted to act on the principal’s behalf. A power of attorney normally grants an agent the ability to access, manage and sell specific assets of the principal. It may also grant an agent the ability to enter the principal into legally binding agreements, such as loans or employment contracts. A power of attorney may also specifically limit what an agent can do. Common limits include preventing an agent from executing a will for the principal, changing the beneficiaries of a life insurance policy or removing property from a trust.
Duty of Loyalty
As an agent, your primary responsibility is loyalty to your principal. This means that you can only use your position to help the principal and not to enrich yourself. Examples of disloyal actions would be to sell yourself the principal’s property at a below-market price or to use your position to secure a business opportunity for yourself that your principal wanted. You may also violate your duty of loyalty if you use your powers in a way that is against your principal’s wishes, even though you gain nothing from the action. For example, if you are permitted to give gifts to a certain group, but you use that power to transfer the property to another group of people, you have violated your duty of loyalty.
Duty of Care
An agent is required to manage the principal’s financial assets subject to the “prudent man rule.” If you tend to make more risky investments with your personal funds, you cannot invest the principal’s assets the way you would invest yours. You must show extreme care and avoid risk to as great a degree as possible. In some cases, you may be granted power of attorney because of your investment philosophy. If that is the case, have the principal state in the power of attorney that he wants you to act according to your investment philosophy.
Acting as Agent
Once you have established what your role is and how to make decisions for your principal, the next step is carrying them out. Most actions an agent takes are achieved by signing documents on the principal’s behalf. The procedures for how you are supposed to sign as an agent vary based on the state and party with whom you are dealing. When finalizing a relationship with an organization in your role as an agent, show them a copy of the power of attorney and ask the institution how it wants you to sign the papers in your role as agent. Generally, you will need to sign your name followed by the phrase “as an agent through power of attorney for” and the name of your principal.