I often hear people say they need to do "their will" when they refer to estate planning. Of course estate planning involves making a will, and most people see the will as the most important aspect of estate planning. Choosing to establish a power of attorney, however, may be the most important decision that a person makes when creating their estate plan. The person who is giving the power of attorney is known as the principal. The person to whom the power of attorney is given is referred to as the agent. Although the law has many provisions to protect individuals from unscrupulous agents, the damage an untrustworthy agent can do may be difficult or impossible to fix, and it directly affects what is left when a person passes away that can be given to beneficiaries under their will.
The duties Pennsylvania's Probate, Estates and Fiduciaries Code places on an agent is to act as a fiduciary, or a person who must act with a high standard of care for the benefit of another, to the principal. What this specifically means is that the agent must:
1. Act for the benefit of the principal;
2. Keep the agent's money and other assets separate from the principal's;
3. Exercise reasonable caution and prudence when acting on behalf of the principal; and
4. Keep accurate records and receipts of deposits, withdrawals and deposits.
Choosing the right agent who will dutifully follow the law is critically important because powers of attorney in Pennsylvania are generally durable, meaning they continue to have effect when the principal becomes incapacitated or disabled. Therefore, your agent must act for your benefit in handling your financial affairs when you are no longer able. Your agent will have full access to your bank accounts, stocks and other property.
Although an agent must keep accurate records of actions taken on behalf of a principal, and provide an account to the Orphan's Court if directed to do so by the court, an agent who abuses his or her power may do irreparable harm to a principal and his or her estate. Money spent may not be possible to recover, and even if an agent is held responsible, a judgment against the agent is only as valuable as the assets the agent actually has.
What I generally see is a person appoint his or her spouse as a primary agent and children as contingent, or backup agents if the other spouse is not available. Some issues arise when an individual is unmarried with no children, and that person finds it a struggle to appoint someone he or she can trust. Another issue I generally see is when a parent has more than one child and is concerned that appointing one child will cause another to be offended. I always emphasize the importance of this decision because of the broad powers that are generally conveyed to an agent. Appoint someone you trust, even if that means you might offend someone else who isn't appointed. In the end, it is better to make the right decision because the wrong decision can be so costly.
Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University and practices in a variety of areas, including Estate Planning and Estate Administration.