Q. A good friend is setting up a financial power of attorney and has asked me to be his agent. He feels his own children are not responsible. If I agree, am I putting my own assets at risk? He is in declining health and I may have to take over his financial affairs soon.
A. Generally, no. By agreeing to be his agent, or what California law calls his “Attorney-In-Fact”, you are not obligating yourself or your own assets for your friend’s financial obligations. In fact, merely because you are nominated as his agent would impose no duty upon you to act at all, unless and until you subsequently agreed to do so in writing. However, once you agreed to do so and/or once you actually started acting as his agent, you would then have a duty to act in good faith and pursuant to the terms of your authority under his Power Of Attorney (“POA”).
At that time, you would then be a fiduciary, with a high duty to act honestly and in good faith. More specifically, you would then have the following duties:
- a duty to act with care and skill
- a duty of loyalty to your friend, requiring that you must act solely in his interest and avoid conflicts of interest;
- a duty to keep his property identifiable and separate from yours;
- a duty to keep your friend informed and follow his instructions;
- a duty to keep records of transactions on his behalf;
- a duty to surrender property to appropriate persons at the termination of your authority.
If you are concerned about your potential liability, you might ask your friend to incorporate a clause in his POA that immunizes you from liability so long as you act in good faith. Also, if you are concerned that his children may wrongfully complain about your actions, you might ask him to include another clause expressly stating that his children may not challenge your actions in court.
Further, with his permission, you might even give him and/or his children periodic accountings of actions you have taken, bills paid and summaries of accounts, so as to head off unfounded suspicion by this full disclosure.
If he just wishes you to manage a specific asset, such as a piece of rental property, you might suggest that he give you a Limited Durable Power of Attorney, authorizing you to manage just that one asset.
Lastly, if you sign any contracts on his behalf, always sign in a manner that clearly indicates you are signing his name merely as his agent. Example: If your friend’s name is John Jones and yours is Peter Smith, you should sign as follows: John Jones, by Peter Smith, his Attorney-In-Fact.
While the above measures would be very helpful to protect you, they would not necessarily be bullet-proof. Whenever one undertakes to handle someone else’s money, there is always the risk – even if it be small – that doing so could expose oneself to criticism and personal liability.
The basic idea is to be honest, avoid commingling your friend’s money with your own, keep good records, and have a reason to justify each action that you take on his behalf.