If you have power of attorney for a relative that allows you to manage their financial matters, keeping track of everything and managing their affairs can get complicated. Problems can arise when your decisions are second-guessed by family members and disputes can result in audits of your activities or expose you to liability.
Exercising power of attorney doesn't need to be fraught with danger, however. If you understand your legal obligations and take some simple steps to ensure that you have documentation of your actions you can feel secure that you won't end up with a losing case even if a disagreement results in litigation.
The key is to keep things separate and organized. If you mix the power of attorney funds with your own finances it quickly becomes unclear which expenses and funds are yours and which are associated with the beneficiary. Here are some basic tips, but keep in mind that every bank has its own rules and procedures, so check with your local bank before doing any of the following:
- Create a bank account in your relative's name: Opening a separate account to handle all the financial matters concerning your relative is the easiest way to keep track of everything and more importantly, to keep everything separate. It's extremely important to keep your power of attorney finances separate from your regular finances in case there are questions about your handling of the power of attorney finances down the road. It can be a nightmare to piece together which expenses were related to power of attorney matters after the fact.
- Whose name should the account be in: Banks differ, but in general get the account in the name of the person you have power of attorney over. Having the account in your relative's name keeps things distinct and since you have power of attorney you will still have access and control over the account.
- Who do you sign the check as: Find out what your bank prefers, but in general you can sign checks in your relative's name, include the phrase "power of attorney" or "POA" and then include your own name.
Maintaining a separate account for your relative, in your relative's name, makes paying bills and receiving payments much easier. Finally, it will also help come tax time, and save you headaches down the road if the IRS or someone else ever challenges your power of attorney status.
Consider Calling a Local Estate Planning Attorney
Handling a financial estate under power of attorney involves some complicated practical issues. You'll want to be sure that your actions are appropriate and won't result in a legal dispute. This could be easy or hard, depending on the circumstances. Overviews and forms can help you understand some basic principles guiding power of attorney, but they can't ask questions or tailor responses to your specific concerns. Find an experienced estate planning attorney near you today.