This column is for everyone who has been named or is serving as an agent under a Texas financial power of attorney. The following suggestions may not keep you from being sued or going to jail, but they should lessen the chance.
Let’s follow that up with the answer to your first question, which should be “Can I really be sued or go to jail?”
Answer: Yes. You are a fiduciary to the principal (who made out the power of attorney). You owe the highest duty not to engage in self-dealing. You have a host of other duties, some of which are spelled out in the power of attorney document, others in the Texas statute, and still others in common law. You can absolutely be sued. Your assets are at risk. You also are subject to a host of statutes that make exploitation of a senior a crime. You can be arrested and convicted if you make a misstep. You will have to use your own funds to mount a defense to a lawsuit or criminal case.
Common Power of Attorney Mistakes
Now let’s talk about mistakes agents commonly make.
- Adding yourself as an account owner to the principal’s bank account. This seems like a logical step to make it easier for you to monitor the account and pay the principal’s bills, but resist the temptation. From the outside it looks like you have asserted an equal ownership in the funds. This is how your creditors, the IRS, and the district attorney will see it. You would have a defense that ownership of the funds is determined by the source of the funds, but it will take time and tracing to prove it. Instead, leave the account solely in the principal’s name and add yourself as a convenience signer.
- Using your Texas power of attorney document to justify endorsing the principal’s name on federal government checks. Don’t. The federal government does not recognize a state power of attorney. Your recourse is to apply to be appointed as representative payee under the Social Security program, and have the principal fill out FS Form 233 (this replaced SF 233) for the collection of checks drawn on the US Treasury.
- Not keeping receipts or maintaining a transaction ledger. Huge mistake. You have a duty to account, in writing, to the principal for each and every expenditure of funds. You will need the receipts to provide that full accounting and to defend yourself against a civil suit or a criminal prosecution.
- Investing the principal’s money on your own. Unless you are an investment expert, do not do this. You have a duty to make prudent investments, taking into account the principal’s age and needs. You need to be able to defend your investment decisions, and the best way to do that is to use a licensed professional to advise and guide you.
- Forging the principal’s name. When you sign a contract or endorse a check for the principal, you do so in your name and show your agency. The cleanest way to do it: [your name], Agent for [principal’s name].
- Spending the principal’s funds to benefit yourself. Without an arms-length and fair written contract authorizing it, don’t do it. The principal’s money should not be used to pay for your vacation, food, electricity, or new swimming pool.
- Continuing to act as an agent after the principal dies. Your authority as agent dies with the principal.
As agent, you need to protect the principal. You should also protect yourself.
Hammerle Finley Can Help
Virginia Hammerle is president of Hammerle Finley Law Firm and Board Certified by the Texas Board of Legal Specialization in Civil Trial Law. To receive her newsletter, contact her at firstname.lastname@example.org or via Hammerle.com. This column does not constitute legal advice.