What is an attorney-in-fact?
– Definition: An attorney-in-fact (also called an agent) is a person legally authorized by a principal (the person who grants authority) to act on the principal’s behalf under a power of attorney (POA). The authority can cover financial, business, and some personal matters depending on the wording of the POA.
Key roles and responsibilities
– Follow instructions: Act within the powers granted by the POA document.
– Fiduciary duty: Put the principal’s interests first; avoid conflicts of interest.
– Record keeping: Keep clear records of transactions and decisions made for the principal.
– Confidentiality: Protect the principal’s private information.
– Termination handling: Stop acting if the POA is revoked, the principal dies, or the POA otherwise ends.
Types of powers of attorney (POA)
– General POA: Broad authority to perform acts the principal could do themselves—managing bank accounts, paying bills, trading securities, selling property, etc.
– Limited (or special) POA: Authority restricted to specific tasks or a narrow time period—e.g., signing documents to close a single property sale.
– Durable POA: Explicitly continues even if the principal becomes incapacitated. If the POA is durable it does not automatically end when the principal loses capacity.
– Springing POA: A POA that only takes effect upon a specified triggering event (commonly, the principal’s incapacity).
Important practical points
– No law degree required: An attorney-in-fact does not have to be a licensed attorney (attorney-at-law). A lawyer can serve as an attorney-in-fact if chosen, but the roles are different: lawyers provide legal advice and courtroom representation; agents make and implement decisions for the principal.
– Multiple agents: A POA can name more than one agent. The document should state whether agents must act jointly (unanimously) or whether a majority can act on behalf of the principal.
– Formalities and state rules: Requirements for valid POAs, witnessing, notarization, and what powers can be delegated vary by state. A POA often terminates on death, revocation in writing, or when its purpose is completed unless it is durable.
– Successor agents: It’s wise to name backups in case the primary agent is unable or unwilling to serve.
Liabilities and risks
– Breach of duty: Misusing the POA or acting outside its scope can result in civil liability and, in some cases, criminal charges.
– Oversight: Banks and third parties may require proof of identity, the original POA, and may have their own acceptance rules.
– Revocation: The principal can usually revoke a POA while mentally competent by providing a written, witnessed, and notarized revocation to the agent and relevant third parties.
Step-by-step checklist to appoint an attorney-in-fact
1. Decide which powers you need to grant (specific tasks vs broad authority).
2. Choose a trustworthy agent and name at least one successor.
3. Determine whether the POA should be durable and whether it should be springing.
4. Use a POA form that complies with your state’s legal requirements or work with an attorney to draft one.
5. Sign the document with the required witnesses and notary as required by state law.
6. Provide copies to the agent, successor agents, and key institutions (bank, broker, healthcare provider if applicable).
7. Keep the original in a safe but accessible place; instruct trusted individuals on where it is stored.
8. Periodically review and update the POA as circumstances change.
Small worked example (decision rule with multiple agents)
Situation: A principal names three agents to manage the sale of a property and specifies that a majority may act.
– Agents: Alice, Ben, and Cara.
– Selling decision: Alice and Ben vote to accept an offer; Cara objects.
– Outcome: Because two of three (a majority) agree, the sale can proceed under the POA’s majority rule.
Contrast: If the POA required unanimity, the same disagreement would block the sale.
Numeric bookkeeping example (simple record-keeping)
– Authority granted: Pay monthly mortgage of $1,500 and manage checking account.
– Agent action in Month 1:
– Record: Paid mortgage check #101 for $1,500 on 2025-07-01.
– Record: Reconciled bank balance: opening $5,000 + direct deposit $2,000 – mortgage $1,500 – utilities $200 = closing $5,300.
– File copies: Keep bank statements, copies of checks, and a short memo explaining transactions for the principal.
Good records protect both the principal and the agent if questions arise.
When you might need an attorney-in-fact
– Convenience: You cannot be physically present for a closing or transaction.
– Incapacity planning: You want someone authorized to act if you become mentally or physically unable to manage affairs.
– Temporary obstacles: Travel, hospitalization, or short-term disability.
Differences: attorney-in-fact vs attorney-at-law (lawyer)
– Attorney-in-fact (agent): Appointed by a POA to act for the principal; not necessarily legally trained.
– Attorney-at-law (lawyer): Licensed professional who provides legal advice and represents clients in court. A lawyer can serve as an agent but the roles are distinct.
Sources for further, reliable reading
– Investopedia — Attorney-in-Fact: https://www.investopedia.com/terms/a/attorneyinfact.asp
– American Bar Association — Powers of Attorney: https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/power-of-attorney/
– Nolo — Power of Attorney Overview: https://www.nolo.com/legal-encyclopedia/power-of-attorney-overview-29647.html
– AARP — Power of Attorney and related caregiving/legal topics: https://www.aarp.org/caregiving/financial-legal/info-2017/power-of-attorney.html
Educational disclaimer
This explainer is for general informational purposes and does not constitute legal, tax, or financial advice. Rules for powers of attorney and agent
Rules for powers of attorney and agents (continued)
Legal formalities and variability by state
– States set the specific rules that determine whether a power of attorney (POA) is valid: which forms are acceptable, whether the principal must sign in front of witnesses, and whether a notary is required. Some states offer statutory POA forms that simplify acceptance by banks and other institutions.
– Durable vs. non‑durable vs. springing: A durable POA remains effective after the principal loses capacity (if the document says it is “durable”). A non‑durable POA ends when the principal becomes incapacitated. A springing POA becomes effective only upon a specified event (commonly the principal’s incapacity) and usually requires proof of that event.
– Recording/filing: Real estate transactions frequently require a POA to be recorded in the county land records; many other uses do not require recording but may require the principal’s notarized signature.
Primary fiduciary duties of an agent
– Duty of loyalty: Act only in the principal’s best interests and avoid conflicts of interest.
– Duty of care: Manage the principal’s affairs with the care that a reasonably prudent person would use.
– Duty to follow instructions: Adhere to the specific powers and limits set in the POA document.
– Duty to account and keep records: Maintain accurate records of transactions and provide them when requested or when required by law.
– Duty to avoid self‑dealing: Do not use the principal’s assets for the agent’s own benefit unless the POA expressly permits it.
Common limitations and express powers
– A POA can restrict powers (for example, grant authority to pay bills but not to sell real estate) or grant broad authority (financial, health‑care, gifting).
– Agents generally cannot change a principal’s will or make testamentary dispositions unless the POA expressly permits it and state law allows.
– Certain high‑risk acts (e.g., transferring property to the agent) are often specifically disallowed or require explicit language and sometimes additional safeguards.
Creating a valid POA — step‑by‑step checklist
1. Decide type: durable, non‑durable, or springing; financial, health‑care, or both.
2. Choose an agent: pick someone trustworthy and document full name, contact info, and successor agents.
3. Specify powers: list explicit authorities (bill payment, banking, real estate transactions, tax filings, gifting, etc.).
4. Include durability language if desired: “This power of attorney shall not be affected by subsequent incapacity…”
5. Add any limits or instructions: monetary caps, required consultations, or prohibited actions.
6. Use an appropriate form: state statutory POA is often best for ease of use.
7. Execute properly: principal signs; obtain required witnesses and/or notarization per state law.
8. Deliver originals and copies: give originals to the agent, file/record if necessary, and provide copies to banks, brokers, and health‑care providers.
9. Keep secure records: store the original safely and keep digital backups of signed copies.
Numeric worked example — agent pays monthly household expenses
Assumptions:
– Principal appoints an agent with authority to manage bank accounts and pay bills.
– Monthly bills: mortgage $1,500, utilities $400, groceries $600, insurance $250, other $250 = $3,000 total.
Procedure:
1. Agent obtains principal’s bank balance and authorized access to online banking.
2. Agent prepares a payment schedule: set automatic monthly transfers or calendar reminders for checks/payments on due dates.
3. Example journal entry when paying the mortgage:
– Starting balance: $12,000
– Mortgage payment (Jan 1): -$1,500 → New balance: $10,500
– Utilities (Jan 3): -$400 → New balance: $10,100
– Record each transaction with date, payee, check/confirmation number, and purpose.
4. Monthly reconciliation: at month end the agent matches bank statement to the payment log and retains receipts.
5. Provide periodic accounting to the principal or successor agent upon request.
Revocation, termination, and replacement of an agent
– Revocation: A principal can generally revoke a POA at any time while competent by signing a written revocation, notifying the agent and any third parties relying on the POA (banks, brokers). Some states require recording a revocation for recorded instruments.
– Termination: A POA ends at the principal’s death, unless otherwise specified; after death, the executor or personal representative controls the estate.
– Replacement: The principal can appoint successor agents within the POA; if not, courts can appoint a guardian or conservator if no valid agent exists.
Recordkeeping and transparency — practical checklist for agents
– Keep a separate ledger or accounting file for the principal.
– Save copies of all paid invoices, bank statements, tax returns, and correspondence.
– Note the authority used for each transaction (cite the POA provision or page).
– Provide periodic reports according to instructions in the POA or state law.
– If the agent is paid, document fees and any reimbursements.
Liability, penalties, and safeguards
– Agents can face civil liability for breach of fiduciary duty and criminal charges for theft or fraud.
– Consider bonding or insurance when handling large sums; some courts require a bond for court‑appointed guardians.
– To reduce disputes: include clear instructions, limit powers where appropriate, name successor agents, and keep transparent records.
Handling disputes and abuse
– Steps to respond: (1) gather records; (2) notify the principal (if possible); (3) notify a trusted family member or attorney;
(4) notify appropriate authorities. If you suspect theft, financial exploitation, or physical abuse, report it to adult protective services (APS) in the principal’s state and to local law enforcement. APS can investigate elder abuse and coordinate services; law enforcement can open a criminal investigation if theft or fraud is suspected.
(5) contact financial institutions and freeze or flag accounts when warranted. Ask banks and brokers to place fraud alerts, freeze disbursements, or open a restricted account requiring dual signatures or court approval. Provide copies of the POA and, if available, a court order. Institutions often have specific procedures and forms for suspected abuse cases.
(6) seek emergency court relief. A court can issue temporary restraining orders, freeze assets, require a bonding of the agent, or appoint a temporary guardian/ conservator with authority to manage assets. Emergency petitions can be filed when immediate action is needed to preserve property or prevent ongoing harm.
(7) petition the court for an accounting and removal. If an agent breached fiduciary duties, a concerned party (including the principal, a family member, or a creditor) can ask the court to compel a formal accounting—detailed records of receipts, disbursements, and actions taken—and, if justified, remove the agent and order restitution.
(8) preserve and compile evidence for litigation. Maintain original documents, bank statements, cancelled checks, receipts, email and text messages, and a chronological narrative of events. Make digital back-ups and note chain-of-custody for physical evidence.
When an agent should resign
– Resignation may be appropriate if the agent can no longer perform duties, faces a conflict of interest, or feels unable to comply with the principal’s instructions. Many states require a written resignation and notice to the principal (if capable), successor agents, and relevant third parties (banks, doctors).
– Practical steps for resignation: (1) prepare a written resignation dated and signed; (2) deliver it to the principal and successor agent(s); (3) notify financial institutions and service providers; (4) provide a final accounting and transfer records/assets to the successor or the principal; (5) retain copies for your files.
Revoking or terminating a power of attorney
– The principal generally may revoke a power of attorney at any time while mentally competent. Revocation should be in writing, signed, and dated, and the principal should deliver copies to the agent and to any third parties who rely on the POA (banks, doctors, etc.). Recording requirements vary: if the original POA was recorded with a county office, the revocation may need to be recorded there too.
– A POA may also terminate by its terms (date or event), by the principal’s death, by divorce in some states (which can revoke a spouse-agent’s authority for certain powers), or by court order.
– If third parties continue to accept an outdated POA, notify them of the revocation in writing and, if necessary, provide a certified copy of a court order terminating the POA.
Authority after the principal becomes incapacitated or dies
– Durable power of attorney: remains effective after the principal becomes incapacitated. Durable means the document contains language stating it remains in force upon incapacity.
– Springing power of attorney: becomes effective only after a stated event (commonly the principal’s incapacity); it usually requires proof (e.g., physician’s statement). Because standards for proving incapacity vary, springing POAs can create friction or delay.
– At death: an agent’s authority ends the moment the principal dies. The estate’s executor or administrator takes over. Agents must promptly transfer control and provide a final accounting to the executor or beneficiaries.
Practical recordkeeping example (simple ledger)
Assume an agent receives funds and pays bills under a POA. Keep entries like this:
– Opening balance: $0
– 2025-02-01: Received Social Security check (deposit) +$1,200 — POA cite: Section 2(a) (income collection) — Balance $1,200
– 2025-02-03: Paid rent to Landlord Co. −$700 — Receipt attached — Balance $500
– 2025-02-10: Grocery store purchase −$80 — Receipt attached — Balance $420
– 2025-02-15: Paid electricity bill −$120 — Electronic confirmation attached — Balance $300
– 2025-02-28: Transferred $200 to principal’s restricted account (savings for medical expenses)
— Balance $300
– 2025-02-28: Transferred $200 to principal’s restricted account (savings for medical expenses) −$200 — Bank confirmation attached — Balance $100
– 2025-03-01: Paid medical co‑pay −$40 — Receipt attached — Balance $60
Final ledger balance: $60
Attachments: deposit slip for Social Security, receipts for rent/groceries/electricity/medical, bank confirmations for the transfer, copy of POA, ledger export (CSV/PDF).
Practical next steps for handing off records to the estate’s executor or beneficiaries
1. Reconcile accounts
– Produce a one‑page reconciliation: opening balance, total receipts, total disbursements, transfers to restricted accounts, closing balance.
– Match each ledger entry to a bank statement line and a receipt. Note any outstanding checks or holds.
2. Prepare a short narrative accounting
– Explain the scope of authority used (e.g., collected benefits, paid living expenses, moved funds to restricted savings for medical costs).
– State the dates you acted under the POA and the date you stopped (e.g., date principal died or POA revoked).
– List assets handed to executor (bank account numbers, cash amounts, location of physical documents).
3. Deliver originals and copies
– Give the executor the original power of attorney (if required by law) or a certified copy.
– Provide originals of receipts if requested; keep a copy for your records.
– Provide electronic copies (PDFs) of bank statements and the ledger.
4. Sign and date the accounting
– Add a signed statement that you acted in good faith and that the attached records are complete to the best of your knowledge.
– If required by local law, include a notarized affidavit or submit to the court for formal approval.
Worked numeric example — concise final accounting
– Opening balance (2025‑02‑01): $0
– Total receipts collected (Social Security): +$1,200
– Total disbursements (rent $700 + groceries $80 + electricity $120 + medical co‑pay $40): −$940
– Transfers to restricted account (savings for medical): −$200
– Closing cash balance turned over to executor: $60
Checklist for daily recordkeeping (use every time you transact)
– Date of transaction
– Counterparty (payee or payer)
– Clear description (purpose)
– Amount (positive for receipt, negative for payment)
– Running balance after each entry
– Category (income, household expense, medical, transfer to restricted account)
– Proof attached (receipt, bank confirmation, screenshot)
– Reference to source of authority (POA section if relevant)
– Notes (if payment was on behalf of principal or a third party)
Common pitfalls and how to avoid them
– Co‑mingling funds: Always use a separate account for principal funds or clearly document transfers into dedicated sub‑accounts. Never mix with your personal accounts.
– Self‑dealing: Avoid transactions that personally benefit you unless the POA expressly authorizes them and the principal’s interests are protected.
– Missing receipts: Photograph or scan receipts immediately and store backups in cloud storage.
– Acting after death: Stop acting the moment you learn the principal is deceased; further control belongs to the executor/administrator.
– Overstepping authority: Read the POA carefully; if powers are unclear, seek guidance from an attorney or decline the transaction until clarified.
What banks and third parties commonly require
– A photocopy vs. an original: Some institutions accept a certified copy; others ask for an original signed POA or a bank form they provide.
– Identification: Bring government ID for the agent and, if possible, contact details for the principal’s institution.
– Certification: If the bank refuses, request a written reason and consider providing a “certified copy” from the notary who notarized the POA or a local court clerk.
When the POA ends (brief)
– Principal’s rev
ocation or incapacity; a POA also ends automatically if the principal dies, when a court voids it, or at any express expiration date in the document. Key endings and practical steps:
– Revocation by the principal: The principal can revoke (cancel) a POA at any time if they are mentally competent. Effective revocation requires notifying the agent and relevant third parties in writing; some institutions ask for a certified copy of the revocation.
– Incapacity and durability: If the POA is nondurable, it typically ends when the principal becomes incapacitated. If it is durable, it continues through incapacity. Always check the document language: “durable” or similar wording is required for it to survive incapacity.
– Death of the principal: The agent’s authority ends the moment you learn of the principal’s death. After death, control of the principal’s estate passes to the executor or administrator named in the will or appointed by a court.
– Court action: A court can terminate or limit an agent’s powers for reasons such as abuse, fraud, or incompetence.
Practical checklist for agents when a POA ends
– Immediately stop making transactions on behalf of the principal.
– Notify banks, brokerages, and other institutions in writing that the POA has been revoked or that the principal has died.
– Return original documents if requested and provide a copy of the death certificate (if applicable).
– Preserve complete records of all prior transactions for the executor or court (see Recordkeeping below).
Durable vs. nondurable vs. springing (brief definitions)
– Durable power of attorney: Continues to be effective after the principal becomes incapacitated (must include explicit durable language).
– Nondurable power of attorney: Terminates on the principal’s incapacity.
– Springing power of attorney: Becomes effective only when a specified event occurs (commonly the principal’s incapacity); may require a doctor’s certification and can create friction with third parties.
Agent duties and fiduciary responsibilities
– The agent (also called the attorney-in-fact) owes fiduciary duties: act in the principal’s best interest, avoid conflicts of interest, keep accurate records, and follow the principal’s instructions.
– Standard duties include: loyalty, prudence (careful decision-making), accounting (keeping and producing records), and disclosure when required by the document or law.
Recordkeeping: step-by-step and a worked numeric example
Why keep records: To prove actions were authorized and for later accounting to the principal, family, or a court.
Minimum recordkeeping checklist
– Copies of the POA and any amendments or revocations.
– A log of every transaction: date, description, payee/recipient, amount, purpose, and supporting receipts/statements.
– Bank and brokerage statements showing agent transactions.
– Correspondence with financial institutions and professionals.
– Annual or periodic inventories of assets under control.
Worked example
Scenario: You, as agent, sell 100 shares of XYZ at $50 per share to pay the principal’s $1,200 medical bill. Brokerage commission = $25; bank transfer fee = $5.
Steps and accounting entries
1) Sell 100 shares × $50 = $5,000 gross proceeds.
2) Subtract commission: $5,000 − $25 = $4,975.
3) Subtract transfer fee: $4,975 − $5 = $4,970 net.
4) Pay medical bill: $4,970 − $1,200 = $3,770 remaining (returned to principal’s cash account).
Record entries to keep:
– Trade confirmation showing sale and commission.
– Bank statement showing deposit of $4,970.
– Receipt/invoice for $1,200 paid for medical expense.
– A one-line
– A one-line ledger note (date, brief description, reference numbers) showing the $3,770 transfer back to the principal’s cash account and the ending cash balance.
Record-retention guidance (practical)
– Keep trade confirmations, bank statements, paid invoices and ledgers for a minimum of 6–7 years; many financial and tax records are commonly retained for that period. State law or specific contract terms may require longer. When in doubt, consult the principal’s attorney or accountant.
– Store originals or certified copies of the power-of-attorney document and any revocations permanently while the POA is in effect, and for several years after it ends.
– For electronic records, ensure secure backups and access logs to show who viewed or transferred files.
Simple journal entries — worked numeric example (continuing previous numbers)
Assumption: accounting is in the principal’s books; agent records transactions on principal’s behalf.
1) To record sale of 100 shares and related fees
– Debit Cash (principal) $4,970
– Debit Brokerage commission expense $25
– Debit Bank transfer fee expense $5
– Credit Investments — XYZ shares $5,000
(Explanation: total debits = $5,000 = credit; cash reflects net proceeds; expenses record costs of the disposition.)
2) To pay the medical bill
– Debit Medical expense $1,200
– Credit Cash $1,200
3) To show remaining cash returned to the principal’s main account (if agent held net proceeds temporarily in an agent clearing account)
– Debit Principal checking account $3,770
– Credit Agent clearing account $3,770
Fiduciary duties and common pitfalls
– Fiduciary duty: the legal obligation to act loyally and prudently for the principal’s benefit. This includes avoiding conflicts of interest, acting within the authority granted, and keeping accurate records.
– Do not commingle: commingling means mixing the agent’s personal funds with the principal’s funds. Keep separate accounts or clearly segregated accounting records to avoid appearance of impropriety.
– Beware of self-dealing: using principal assets to benefit the agent personally (without explicit authorization) can breach the duty of loyalty.
– Maintain regular communications and, if requested, provide periodic written accountings to the principal or third parties (courts, family, trustees) as required.
Practical checklist for an agent before making transactions
1) Verify that the POA is valid: confirm signatures, notarization/attestation if required, and whether the power is durable (continues if principal becomes incapacitated) or springing (takes effect upon a specified event).
2) Confirm scope: identify explicit powers (real estate, investments, banking, gifts) and any prohibitions.
3) Ask financial institutions for their POA acceptance form and provide a copy of the document; obtain written confirmation of their acceptance.
4) Keep separate accounts or ledger lines for principal funds; do not use your personal accounts.
5) Record every transaction with supporting source documents (trade confirmations, receipts, invoices).
6) Reconcile accounts promptly after each material transaction.
7) Notify relevant parties if the principal revokes the POA or dies (death terminates most POAs).
Revocation and termination — steps to follow
– The principal may revoke a power of attorney by signing a written revocation. If the principal becomes incapacitated and the POA is not durable, it may automatically terminate.
– Steps agents or third parties should take on revocation:
1) Obtain a copy of the signed revocation document.
2) Notify banks, brokerages, and any third parties that have relied on the power of attorney, supplying them the revocation and requesting they stop honoring the POA.
3) If institutions continue to act, document the date and communications; consider seeking legal counsel if necessary.
– Death of the principal immediately ends an agent’s authority; the agent should cease acting and notify institutions and the executor or personal representative.
Tax and regulatory considerations (high level)
– Agents may need to sign tax forms with authority (for example, IRS Form