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Power of Attorney and the Agency Relationship

Updated: May 19, 2023

A Power of Attorney is a document that establishes an agency.[1] An agency is a relationship where one person gives another party the authority to act on one's behalf.[2] The person who creates the Power of Attorney is called the “principal.” The party who will act on the principal’s behalf is called an “agent.”[3] In a Power of Attorney, the principal selects their agents and picks the different types of decision-making powers that they want their agents to have.

Sometimes, an agent is called an “attorney-in-fact,” which is frequently confused with an “attorney-at-law.”[4] If you’re wondering why in the world anyone would use a term that’s so easily confused with a lawyer, then here’s a Fun Fact: The word “attorney” actually means “agent.”[5] Therefore, in our everyday language, the word “attorney” really means an “agent-at-law” or a “legal agent.”[6] It follows that an “attorney-in-fact” means an “agent-in-fact.”[7] As time passed, the abbreviated term, “agent,” was then used.

When you go to an attorney’s office and request a Power of Attorney, you are the principal. You are creating this agency, which is a fiduciary relationship. (We’ll talk about the word “fiduciary” in a moment.) The person you’ve chosen to act on your behalf is your agent.

A Power of Attorney is a safeguard when you are in a position of vulnerability during a health event. A Power of Attorney legally authorizes a person of your choosing to act on your behalf with regard to your finances and other property. In the event of a medical emergency, a Power of Attorney grants legal authority to your designated agent, so they can pay your bills and manage your accounts.

Married couples frequently share joint financial accounts, and they assume their spouse will handle the money and other property in the event of a health emergency. However, if one spouse holds any type of individual account, then the other spouse will not have legal authority to access it. In addition, few couples consider a catastrophic event where both spouses are medically impacted. Who would handle the family finances and other property then?

A Power of Attorney is also of critical importance to young adults, who have reached the age of majority and who are no longer under their parents' legal authority. This means that a parent can't legally access their adult child's accounts. In addition, a Power of Attorney is essential for individuals who are unmarried, divorced, or widowed. If these individuals have not executed a Power of Attorney, and they are no longer capable of managing their own finances or other property, then no one can manage these accounts until a guardian is appointed in a court of law, which is a time-consuming and costly legal endeavor. In many cases, a person can simply establish a Power of Attorney well before a health crisis to avoid the time, cost, and complications of a guardianship proceeding.

To achieve optimum efficacy, the agent is granted legal access to the principal's financial accounts. However, giving another person legal access to your sensitive, financial information produces a different kind of vulnerability. Let’s circle back to the word “fiduciary.”

A fiduciary is “[a] person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidences and candor…One who must exercise a high standard of care in managing another’s money or property.”[8] While the legal definition of a fiduciary may conjure Hollywood images of a hero making a solemn blood oath with a dagger or longsword, the emphasis on trust and duty is actually warranted.

By law, an agent in a Power of Attorney is a fiduciary, and therefore, an agent is placed in a position of trust. When a principal chooses an agent and grants them access to their financial information, the principal must be certain that the designated individual will act in the principal’s best interest. Acting in the best interest of another person is the duty of a fiduciary.

When the language of law was first constructed in the Middle Ages, honor was the pillar of civilization. Sadly, it seems the ideals of good faith, trust, confidences, and candor no longer take center stage in our modern society. However, when you become vulnerable, and you entrust another person to handle your financial well-being, the steadfast duties of a fiduciary regain all the import they possessed when our laws were first conceived. “Fiduciary” becomes an incredibly important word. When you’re choosing your Power of Attorney agent, be certain that your candidate understands the weight of the word “fiduciary,” too.

Until next time…Plan Early. Plan Often. Plan Well.

Beach Barrister is NOT a law firm. We are an educational forum. We do NOT legally counsel individuals based upon their specific life circumstances or planning goals.

Beach Barrister is NOT a substitute for legal counsel. We highly encourage every viewer of this site to seek a local, licensed, reputable attorney to assist you with your state-specific laws, planning goals, and execution of documents.

[1] Jesse Dukeminier & Robert H. Sitkoff, Wills, Trusts, and Estates 496 (Vicki Been et al. eds., Wolters Kluwer Law & Business 9th ed., 2013). In some states, a Power of Attorney can be called a Durable Power of Attorney or a Financial Power of Attorney. [2] Id. [3] Id. [4] Id. [5] Id. [6] Black’s Law Dictionary, 147 (9th ed. 2009). [7] Id. [8] Black’s Law Dictionary, supra note 3, at 702.

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