Is a Power of Attorney Liable for Debts?

By Tom Speranza, J.D.

Is a Power of Attorney Liable for Debts?

By Tom Speranza, J.D.

A power of attorney is a written contract that someone, called the principal, uses to grant another person, known as the agent or attorney-in-fact, the power to make decisions for the principal about financial and property matters. As a general rule, attorneys-in-fact are not, and cannot be, personally responsible for the debts incurred by the principal.

Elderly woman and young woman smiling and using a laptop together

Legal Capacity of an Attorney-in-Fact

Attorneys-in-fact act in their capacity under a power of attorney only as agents or representatives of the principal. They do not act for their own benefit under a power of attorney or make decisions that involve their own assets and finances.

For example, if the attorney-in-fact for an elderly principal suffering from dementia makes monthly mortgage payments for the principal's house from the principal's checking account, the attorney-in-fact does not by those actions become a borrower or guarantor under the mortgage. In other words, the attorney-in-fact does not become responsible for repaying the lender from the attorney-in-fact's personal funds if the principal runs out of money.

The same rule applies to any other debt or financial obligation of the principal—whether it arose before or after the attorney-in-fact's appointment. When an attorney-in-fact uses the principal's funds to pay utility and hospital bills, credit card debt, student loans, or any other monetary liability, all those obligations continue to be the principal's financial responsibility.

This rule applies to new debt incurred for the principal's benefit—not just debt that existed when the attorney-in-fact took over. For example, if the elderly principal needs a new wheelchair or a hospital bed in his home, the attorney-in-fact can make a determination that buying the equipment on credit makes sense given the principal's financial resources. So long as the terms of the power of attorney document do not prohibit new debt, the attorney-in-fact can use the principal's credit card to purchase the equipment and pay for it in installments from the principal's bank accounts.

Breach of Fiduciary Duty

Circumstances in which attorneys-in-fact can incur personal financial liability involve attorneys-in-fact breaching their fiduciary duties to the principal. Under each state's law, an attorney-in-fact must fulfill specific legal obligations known as fiduciary duties. Although the exact wording differs by state, the laws require an attorney-in-fact to:

  • Abide by the provisions of the power of attorney document, including any limits on the agent's powers
  • Act in the best interest of the principal and the principal's property and financial assets
  • Avoid self-dealing and other transactions that benefit the attorney-in-fact (either directly or indirectly)
  • Make decisions and take actions based on his or her reasonable judgment under the relevant circumstances
  • Avoid negligence and carelessness

If an attorney-in-fact breaches any of these fiduciary duties, he or she can be personally liable for any monetary damages that result and, depending on the circumstances, could face criminal charges for fraud. Some examples of a breach of fiduciary duty include:

  • Refinancing the mortgage on the principal's house but failing to shop around to get a competitive interest rate (a court may require the attorney-in-fact to pay the extra interest expense incurred by the principal).
  • Engaging the attorney-in-fact's brother to be the principal's investment advisor and agreeing to pay inflated management fees for the brother's services (a court may require the attorney-in-fact to repay excessive fees)
  • Opening credit cards in the principal's name and using them to charge personal expenses (a court may require the attorney-in-fact to repay all principal and interest owed on the accounts)
  • Violating an explicit prohibition in the power of attorney against changing the beneficiary of the principal's life insurance policies by making the attorney-in-fact a policy beneficiary (a court would require the attorney-in-fact to repay any amount received under the policy)

Borrower, Cosigner, and Guarantor

Keep in mind that a person acting as an attorney-in-fact can be personally liable for a principal's debts if the attorney-in-fact has agreed to create that obligation in another legal capacity. For example, a son or daughter who is an attorney-in-fact for an elderly parent might agree to be a coborrower or cosigner with the parent for a bank loan or mortgage. That son or daughter might agree with a nursing home to be the guarantor of the residence fees if the parent cannot pay them.

The legal obligations of an attorney-in-fact are distinct from the legal obligations of a borrower, cosigner, or guarantor and arise under different contracts.

Overall, an attorney-in-fact is not liable for any debts that the principal has. This does change, however, when the attorney-in-fact does not operate in the principal's best interests or if a legal obligation was stipulated in the power of attorney form. Also, an attorney-in-fact will be held legally liable for any expenses or decisions made that breached the fiduciary duties.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.