In 2011, uncompensated agents who act under a power of attorney as another’s agent for financial and property affairs may now be held more easily accountable for a loss to the principal’s property.  Previously, uncompensated agents were not liable unless the loss resulted from the attorney-in-fact’s bad faith, intentional wrongdoing, or gross negligence.  That immunity allowed some uncompensated agents to act irresponsibly to the detriment of the principal.

Although an Agent appointed under a power of attorney still does not have an affirmative duty to act (unlike a trustee), whenever such agent chooses to act under the power of attorney then the agent must do so prudently and responsibly under the circumstances known to the agent.  Even agents who act without compensation and breach this duty may now be held liable by a Court for (1) any loss or depreciation in value of the principal’s property resulting from the breach of duty, with interest; (2) for any profit made by the attorney-in-fact through the breach of duty, with interest; or (3) for any profit that would have accrued to the principal if the loss of profit is the result of the breach of duty.

Consider, for example, a son who manages (without pay) his parents’ brokerage account as their agent for financial affairs.  As agent the son makes investment decisions and buys and sells securities using his parents’ money.  Now when the son as agent makes these investments, he is held to a similar standard of care as a trustee responsible for trust investments.  Thus, if the son acts negligently – such as making unsound investments without reliance on an qualified investments advisor – he can be held liable in the ways described above; such as for any loss resulting from a breach of this duty.

How would the negligent agent ever be held liable?  A court proceeding initiated by a petition to impose the liabilities (penalties) would have to be filed.  That petition could be filed by the principal, by a subsequent agent or by a subsequent conservator for the estate of the principal.  The court would then hear the facts and circumstances related to the agent’s actions and would then decide whether or not to impose the penalties.  The Court has discretion to excuse the negligent attorney-in-fact in whole or in part from liability if the attorney-in-fact acted reasonably and in good faith under the circumstances as known to the attorney-in-fact, if the court finds that it would be fair and just to do so.

Clearly, the purpose of the law is to protect the principal (the parents in my example above) from an unreasonably negligent agent by holding the agent accountable.  An agent is, therefore, well advised to seek relevant professional help to properly undertake any endeavor on behalf of the principal.  Accordingly, if the agent is signing the principal’s tax return, the agent should hire a qualified tax preparer to prepare the tax return.  If is selling real property, the agent should hire a qualified real estate agent to assist in the sale. If the agent is managing investments, the agent should hire a qualified financial advisor.  And, lastly, if when any legal issues arise, the agent should consult a licensed attorney for advice.


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