In one sense, being named to act as someone’s agent under a power of attorney should be considered an honor – clients are encouraged by their lawyers to choose agents who are highly trustworthy and competent. Even well-meaning agents, however, can make mistakes, either from simple human error or from a misunderstanding of an agent’s obligations and responsibilities under Virginia law. Here are just a few of the issues we see giving agents trouble.
Agents are obligated by statute to keep records of every transaction they undertake in their principal’s name. Depending on the individual situation, this could mean keeping many years of records of deposits, withdrawals, expenses paid, reimbursements made to the agent, purchases, and sales. This can be a lot to undertake while also trying to run your own, busy life, and many agents therefore let their records slip. The pitfall? If these records are requested by certain individuals listed in the statute, the agent is obligated to hand them over within thirty days. Recreating these records (up to five years’ worth) may be impossible at the point the request is received, so it is critically important to maintain the records from the start.
Although powers of attorney often grant agents broad powers to undertake any action the principal could take with regard to his or her finances, certain powers are considered special and require an express grant of authority to be stated in the document. If those powers are not specifically listed, the agent is not authorized to exercise them. These “special powers” include:
Creating, revoking, or amending the principal’s revocable trust;
Making gifts of the principal’s property;
Creating or changing rights of survivorship or beneficiary designations;
Delegating the agent’s authority to someone else;
Waiving the principal’s right as a beneficiary of a joint and survivor annuity (including a survivor benefit under a retirement plan); and
Exercising fiduciary powers that the principal has authority to delegate.
Agents should read the power of attorney granting them authority carefully to determine exactly which powers are granted to them and which are withheld. In addition, certain powers, even if expressly granted, are further limited by statute depending on the agent’s familial relationship to the principal.
Conflicts of Interest and Good Faith
An agent is obligated to act on the principal’s behalf in accordance with the principal’s best interest, in good faith, and free from conflicts of interest. Although these may seem like straightforward conditions, in practice they can be more complicated. An agent can run afoul of these fiduciary responsibilities even when he or she has no intention to act against the principal’s best interest or otherwise cause harm to the principal.
The bottom line? For violating these duties, agents can be held personally liable for any actual loss to the principal, as well as the attorneys’ fees and costs of a party who raises the issue. Thus, the best practice is always to get legal advice before taking any action that raises the slightest question mark or causes you to hesitate for any reason. If you are already acting as agent under a power of attorney and have questions about transactions you have already entered into, it may not be too late to “right the ship” and get back into compliance with your legal responsibilities.
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