Attorney-in-Fact: Meaning, Powers, and Responsibilities

This article explains what an attorney-in-fact is, as well as the responsibilities and duties your attorney-in-fact may have toward you and your property.

What Is An Attorney-in-Fact?

An attorney-in-fact is the trusted person you appoint in a written power of attorney document to act on your behalf. In legal terms, the person who makes the document is called the principal, and the attorney-in-fact is the person who is the agent in a power of attorney. (Because states often use the terms attorney-in-fact and agent interchangeably, you'll see both terms in the following discussion.) Your attorney-in-fact's responsibilities depend on the specific powers you grant in the power of attorney document.

What Does An Attorney-in-Fact Do?

Commonly, people give an attorney-in-fact broad power over their finances. But it's up to you. Here are some powers commonly granted to attorneys-in-fact:

• paying everyday expenses
• handling transactions with banks and other financial institutions
• buying, selling, maintaining, and paying taxes and mortgages on real estate and other property
• filing and paying your taxes
• managing your retirement accounts
• collecting benefits from Social Security, Medicare, or other government programs or civil or military service
• investing your money in stocks, bonds, and mutual funds
• buying and selling insurance policies and annuities for you
• operating your small business
• accessing and controling your digital assets
• claiming or disclaiming property you get from others
• making gifts of your assets to organizations and individuals that you choose
• transfering property to a living trust you've already set up
• hiring someone to represent you in court.

You can tailor your durable power of attorney for finances to fit your needs by choosing which agent powers you grant and placing certain conditions and limitations on those powers. For example, you can give your attorney-in-fact authority over your real estate, with the express limitation that your house may not be sold.

To learn more about the duties of an agent, see What Powers Can a Financial Power of Attorney Include?

An Attorney-in-Fact's Legal Responsibilities

The attorney-in-fact you appoint in your durable power of attorney is a fiduciary—someone who holds a position of trust and must act in your best interests. The power of attorney fiduciary duty requires your attorney-in-fact to:

• handle your property honestly and prudently
• avoid conflicts of interest
• keep your property completely separate from their own, and
• keep adequate records.

These standards do not present problems in most situations. For example, suppose you just want your attorney-in-fact to sign for your pension check, deposit it in your bank account, and pay for your basic needs. In that case, there is little possibility of uncertainty or dispute.

Sometimes, however, these rules impose unnecessary hardships on an agent. For example, your property may already be mixed with that of your attorney-in-fact, and it may make good sense for that to continue. In your power of attorney document, you can permit your attorney-in-fact to deviate from some of the rules above, so that their freedom isn't unnecessarily fettered.

Liability for Mistakes

Your attorney-in-fact must be careful with your money and other property. State laws require an agent to act as a prudent person would under the circumstances. That means the primary goal is not to lose your money.

The attorney-in-fact may, however, make careful investment moves on your behalf. For example, if your money is in a low-interest bank account, the attorney-in-fact might invest the money in government bonds, which pay higher interest but are still very safe.

Because most people choose a spouse, close relative, or friend to be their agent, your power of attorney makes your attorney-in-fact liable only for losses resulting from intentional wrongdoing or extreme carelessness—not for a well-meaning decision that turns out badly.

Record-Keeping Responsibilities

Your attorney-in-fact is legally required to keep accurate and separate records for all transactions made on your behalf. Good records are vital if the attorney-in-fact ever wants to resign and turn the responsibility over to another person.

Record keeping isn't an onerous requirement. Your agent must simply be able to show where and how your money has been spent. In most instances, it's enough to have a balanced checking account and receipts for bills paid and claims made. And because the attorney-in-fact will probably file tax returns on your behalf, income and expense records may be necessary.

Signing Checks and Other Documents

Many people wonder who signs a power of attorney. Does the attorney-in-fact have to sign the power of attorney document? And then, how does the attorney-in-fact sign checks or other documents on your behalf?

First, an agent doesn't have to sign a durable power of attorney for finances before taking action under it. The only signature required is your own, unless you are in one of the few states that requires one or two witnesses to sign your document as well.

Next, when it comes to other signatures, exact procedures vary depending on local custom and the policies of a particular financial institution or government agency. In some places, after establishing authority with a specific institution or agency, the attorney-in-fact will sign their name to checks and documents, followed by "POA" or other language such as "under power of attorney dated June 15, 20XX." In other locations, the agent will first sign your name and then their name, followed by the "POA" designation.

Additional Duties and Responsibilities of an Attorney-in-Fact

After you've named your attorney-in-fact and decided which financial powers to grant, you have just a few more choices to make about how they will carry out the job.

Periodic Reports

You can require your agent to issue reports to people you name. Unless you require it, your attorney-in-fact doesn't have to report to anyone about your finances. In most cases, that arrangement is fine. But in some circumstances, you may want to require reports. For example, if the attorney-in-fact is in charge of your business, investors may need to receive periodic financial statements, audited or reviewed by an accountant. Or you may want to defuse a potentially explosive personal conflict by reassuring suspicious family members that they'll receive regular reports about your finances.

The idea of making your agent accountable to people may appeal to you. But before you enter a long list of names of people to whom your attorney-in-fact must make reports, ask yourself whether or not these reports are essential.

One of the most important reasons for making a durable power of attorney is to give control of your finances to someone you trust completely, bypassing the court system. One significant advantage of this tactic is that it spares your agent the hassle and expense of preparing reports and accountings for a court.

If you want someone to keep tabs on your attorney-in-fact, think again about whether you truly trust the person you've named. Weigh the need for the reports against the expense of preparing them and the inconvenience to your attorney-in-fact. If you have a very anxious relative, you may want to authorize quarterly reports. Making these reports could be less of a hassle for your attorney-in-fact than dealing with constant interference from your family members. If the situation is not so tense, semiannual reports do just fine.

Delegating Powers

If your attorney-in-fact resigns from the job, the alternate you named will take over. But if there is no alternate available, or if your attorney-in-fact is only temporarily unavailable, they will need to find another person to do the job.

If you allow it, your attorney-in-fact can turn over all or part of the attorney-in-fact's duties to someone else in this situation. This reassignment of duties is called delegation.

An agent with the power to delegate tasks is free to turn over any or all of the job to a competent third person. This person may step in temporarily or permanently, depending on the situation.

Delegation When You've Named More Than One Attorney-in-Fact

Delegation becomes more complicated if you've named more than one agent.

Attorneys who must act jointly. If you require your attorneys-in-fact to act together in all that they do, it's a good idea to give them the power to delegate responsibilities. Doing so will avoid trouble if one or more of your attorneys-in-fact becomes unable to act on your behalf. If this happens, the unavailable attorney-in-fact can delegate their authority to the remaining attorneys-in-fact, temporarily or permanently. Your remaining attorneys-in-fact can use evidence of the delegation (usually a completed delegation form) to prove that they are permitted to act alone.

If you don't grant the power to delegate, an attorney-in-fact who will be unavailable will have to execute an affidavit —a sworn, notarized statement—that they cannot act for you. (If one of your attorneys-in-fact permanently resigns, they can sign a resignation form; the remaining attorneys-in-fact can use that form to prove their authority.)

In the unlikely event that all of your attorneys-in-fact will be temporarily unavailable, they can get together to choose a person to take over.

Attorneys-in-fact who may act separately. If you've authorized your attorneys-in-fact to act independently, allowing them to delegate tasks is probably not necessary or wise. The main reason for allowing delegation is to ensure that someone will always be on hand to take care of your finances. In your situation, if just one of your attorneys-in-fact is temporarily unable to act on your behalf, the others may act alone, without any special documents or fuss. And you can name alternate attorneys-in-fact to take over if all of your attorneys-in-fact must step down.

Allowing delegation in your situation could, in fact, create much unnecessary confusion. Because your attorneys-in-fact may act independently, they could each delegate tasks to individuals that they choose, without consulting each other. When it comes to your finances, it's better not to open the door to that sort of chaos.

Exceptions to An Attorney-in-Fact's Legal Responsibilities

As discussed, your attorney-in-fact's fiduciary duty means that they must always act in your best interests, must act honestly and prudently when managing your property, and must keep good records. However, you may want to allow your attorney-in-fact to deviate from some standard legal duties, including:

• avoiding conflicts of interest, and
• keeping your property completely separate from their own.

Conflicts of Interest

In most states, an agent has no right to engage in activities from which the agent personally stands to benefit. Such activities, which create conflicts of interest between the principal and attorney-in-fact, are called self-dealing. The attorney-in-fact's motive is irrelevant. If someone challenges the transaction in court, it is presumed fraudulent until the attorney-in-fact proves otherwise.

The ban on self-dealing exists to protect you; after all, the agent is supposed to be acting on your behalf. However, it's pretty sensible to give the attorney-in-fact permission to self-deal if the attorney-in-fact is your spouse, a close family member, a business partner, or another person whose finances are already intertwined with yours.

Making Gifts

When you grant financial powers to your attorney-in-fact, you may allow your attorney-in-fact to receive gifts of your property. If you explicitly grant the gift-making power in your document, receiving permitted gifts is not considered a conflict of interest. In other words, it's perfectly fine to forbid your attorney-in-fact from using your power of attorney document for personal benefit while also allowing them to receive some of your property as a gift.

Mixing Funds

An attorney-in-fact is never allowed to mix or commingle your funds with their own unless the power of attorney specifically authorizes it. But suppose you appoint your spouse or an immediate family member as your agent, and your finances are already mixed. In that case, you'll want to grant your agent the explicit authority to combine funds.

More Information About Durable Powers of Attorney for Finances

To learn more about durable financial powers of attorney, see the following articles:

• What Is a Durable Power of Attorney?
• When Does a Durable Power of Attorney Take Effect?
• What Powers Can a Financial Power of Attorney Include?

You can learn more about making WillMaker's durable power of attorney for finances in WillMaker's Legal Manual.