Financial events involving the elderly

Power of Attorney FAQs

The primary purpose of a power of attorney is to act as another person’s legal agent during their lifetime should they need you

If they pass away, you may be wondering if you will be responsible for any debts after the principal’s death. Here are some answers

First, consult an elder law attorney in your area. 

Secondly, a POA can and should obtain insurance for any liabilities. 

Third, in our lay person opinion – never sign or co-sign for anything, unless an attorney is consulted.

Next, the terminology:

A principal is a person who designates power of attorney.

The agent (or attorney-in-fact) is the individual who is granted legal authority through a Power of Attorney.

Legally obligated/financially responsible? Having Power of Attorney does not make you responsible for the principal’s debt when they die unless other legal ties obligate you. 

In this article, we will address the following questions:

• What is a power of attorney responsible for?
• Am I responsible for my parent’s debt if I have a power of attorney?
• Should you pay a debt collection because I hold a power of attorney?
• Can being a power of attorney get me into debt?

What is a power of attorney responsible for?

A power of attorney is a legal document that gives someone the authorization to act on behalf of someone else. In other words, power of attorney gives you (the agent) authority to act on behalf of the principal in the event of incapacitation. 

A power of attorney (POA) gives the agent authority to manage the principal’s affairs, including finances, property, or medical-related decisions. There are different types of power of attorney. Below, we discuss some of them.

Financial power of attorney

As a financial POA, you have the authority to manage businesses, bank accounts, pay debts, etc. Depending on the type of POA, you may be able to sign and accept checks on the principal’s behalf. It is crucial to read the contract carefully so as not to overstep your mandate. There are different types of financial power of attorneys, including:

• General power of attorney: The agent is given overall authority over the principal’s finances and manages the principal’s estate and property, according to the POA contract. In some cases, the agent can also access the principal’s bank accounts and pay for bills and other expenses on the principal’s behalf. They can also collect debts and make investment decisions on behalf of the principal.
• Limited/specific power of attorney: The agent has authority over certain aspects of the principal’s affairs concerning their estate and property while alive. The Limited POA clearly states which aspects these are and how long the authority lasts.
• Durable power of attorney: The DPOA stays effective even after changes in the principal’s situation. A separate document, “springing,” explains events that must occur before the DPOA agent can take specific actions.

Before you sign a contract be sure to read and understand what your duties entail. Every state has a statutory form for POAs. Here’s an example for the state of New York of a Durable Power of Attorney.

Health care power of attorney (HCPOA)

As a HCPOA, the agent has the power to decide what kind of medical care the principal receives, including surgeries, hospital/home care, or psychiatric treatment if the principal is incapacitated. They also decide on the doctors or care providers and other health-related issues such as the principal’s diet and even who bathes the principal.

Upon death: The POA, the agent can be authorized to make financial transactions after the death of the principal. After which the POA will expire, since the dead cannot legally own property or hold funds. But the property will be transferred to the deceased principal’s estate in the care of the estate executor.

Related? What if, as a POA, you are also a relative of the principal? You might be wondering if that makes you responsible for their debts, medical bills, and nursing home fees. Keep reading to find out the financial responsibilities of an agent with a POA. Please note:  never sign for papers presented to you from a nursing facility, that is an important rule-of-thumb to live by.  

Am I responsible for my parent’s debt if I have a power of attorney?

No. A POA does not transfer your parent’s debts to you. Unless you are party to the debt (as discussed below), your only responsibility is to execute their wishes as stipulated in the contract. When they pass away, the responsibility for debts goes to the executor, who must oversee the payment of outstanding debts.

Is POA responsible for medical bills?

The law does not require you to pay the medical bills only because you have a POA—the bills go to the individual’s health care insurer or their estate. Deciding to pay medical bills for a loved one is purely a personal choice. Therefore, medical debt collectors cannot come after you for your parent’s medical bills after they die.

Is POA responsible for nursing home debt?

You should not feel obligated to pay nursing home debts left behind when the principal dies. The contract they signed with the institution clearly states who should cover their bills. When they die, the POA does not make you responsible. The executor must oversee the use of their estate to cover the debt.

What is the difference between a power of attorney and the executor of an estate?

After the expiration of a POA, the executor of the estate becomes responsible for legal and financial matters on behalf of the deceased principal. The executor of the estate is usually named by the will and is bound by its provisions. Essentially, while a power of attorney represents a principal while they are alive, the executor represents the principal after death. Once appointed, the executor can only follow the instructions laid out by the will. If the deceased principal did not leave a will, interstate laws apply to decide how the deceased’s estate is managed.

The underlying rule governing an agent’s power of attorney is that they must act in their principal’s best interest. In this regard, they cannot perform the following tasks:

1. Alter, modify, or amend a principal’s will.
2. Go against their fiduciary duty to act in the principal’s best interest.
3. Unless named the executor of the principal’s will, make estate decisions after the principal’s death.
4. Transfer power of attorney to someone else, but it is within their rights to decline their appointment at any time.

When a POA is responsible for debt

When it comes to debt, an agent acting under a power of attorney is not liable for any debts the principal accrued before being given authority or/and any obligations outside their scope of authority.

However, it is critical to note that as an agent and one of the principal’s most trusted companions, you can find yourself liable for the principal’s debt in several ways:

• Co-signers. A person who intentionally guarantees or co-signs a debt together with their principal will remain liable after the principal’s death. It does not matter who among the two parties benefited from the debt. If you agree to co-sign a loan with the principal, the contract states that you owe the debt too. If they die, you are responsible for the debt. So, you want to be mindful about creating a situation where you co-sign a debt with power of attorney.
• Joint Accounts. If the agent and the principal hold a joint bank account, any debt remaining from the account is left under the agent’s care when the principal dies. The survivor must settle any debts accrued from the account in full, regardless of who benefited it.
• Communal Property. In certain states, you have the same rights to property and liabilities as your spouse. You share equal responsibility for debts. Under these state guidelines, marital property (both assets and liabilities) is considered communal. Liability on debt, therefore, falls on the surviving spouse. The nine states with community property laws include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

If you plan on getting married in these states, you will want to find out if it’s wise to get married to someone in debt.

Who settles the principal’s debts?

In the event of death, all the outstanding debts liable to the principal should be settled using the property in their estate left after death. The family members of the principal are not responsible for any debts owed by their deceased relative. However, if a family member or members were co-signatories, guarantors, or joint account holders, the debt will automatically fall to them.

The principal’s assets will be distributed among the named beneficiaries of the will only after the debts are paid. You should note that if any relative inherits assets like a car or house with a loan/mortgage, the debt is carried forward to them.

Suppose the principal’s assets are insufficient and cannot pay all creditors. The estate is usually split up among the creditors. In these cases, the secured creditors get priority.

Can a power of attorney get me into debt?

If you use POA against the contract, you could get into debt. Cases of POA fraud, which are common, or abuse of power that results in debt are your responsibility. So, while it can feel like a privilege to be an agent, it comes with a serious duty to observe the law.

Is a POA under obligation if there is debt collection?

Acting in the principal’s best interest includes using their money to pay any debts they may have. So, if they can afford to pay, you must disburse payments to the respective lenders (if the contract allows you). If you unreasonably refuse to pay such debts, their accounts may go into collection, which could ruin their credit.

On the other hand, the law does not require you to pay for the principal’s debt out of pocket, and no creditor or debt collector should harass you on their behalf. You have a right to dispute the account a collection agency is imposing on you. The Debt Validation Letter is your first line of defense. Because they won’t be able to prove the debt is yours, they have to stop contacting you about it.

Some unscrupulous debt collectors may even take you to court. Whatever you do, don’t ignore the Summons. You should respond immediately by filing a written Answer with the court. Once they get an Answer, most debt collectors will dismiss the court case.

Remember, you are not personally responsible for paying a deceased person’s debt. That should be transferred to their estate. And the executor (not you) should take over the distribution of any assets and money.

So, is POA responsible for debt?

No. The principal’s debt is not your responsibility. Still, managing someone else’s money is not a light task. But you can succeed in putting the principal’s best interest first if you understand your role. When debt collectors try taking undue advantage of the POA, stick it to them with a Debt Validation Letter and respond to all debt lawsuits with an Answer document.