Can an agent with power of attorney legally gift a principal’s money to themselves or their loved ones? Get the facts before it’s too late.
Suppose an agent and their spouse need to place a down payment on a house but currently lack the necessary funds. Can a power of attorney borrow money from the principal with the intention of promptly repaying it?
The answer depends on the specifics of the situation. If the power of attorney document explicitly authorizes the agent to borrow funds, they may be permitted to do so. They may also be permitted if the principal is mentally competent and gives express consent.
In most cases, however, borrowing money without clear authorization and disclosure is considered a breach of fiduciary duty and an overstep of the agent’s authority — which could make the agent personally liable for any losses incurred as a result of their action.
Suppose an agent under a power of attorney is the principal’s adult child who regularly received financial support from the principal in the past. Can a power of attorney gift money to themselves simply because the principal likely would give them the funds anyway?
The answer is no — unless the power of attorney document, or the principal themselves (given they are of sound mind), specifically authorizes such gifts. An agent’s authority is strictly limited to what is outlined in the power of attorney document, and their familial relationship with the principal has no legal bearing on whether they can transfer money to themselves. Without explicit authorization, gifting money to oneself could constitute self-dealing and lead to serious legal consequences.
Suppose an agent is running errands for the principal that deplete their gas tank. Can a power of attorney use a credit card belonging to the principal to pay for refueling, provided the expense is reasonable and directly related to their duties under the power of attorney?
Agents are not expected to cover such costs from their own pockets, but they must keep detailed records to ensure accountability. While it’s typically clear that agents may have to use the principal’s money for the principal’s own benefit — such as to pay their rent or medical bills, make home repairs or hire caregivers — some situations are less clear, creating ambiguity around the legality of transferring funds.
Understanding the rights and limitations of a power of attorney is essential in preventing misuse. If you suspect an agent is misusing their authority or misappropriating the principal’s money, taking prompt legal action is critical. The sooner concerns are addressed, the better the chance of a favorable outcome.
Consulting a fiduciary misconduct attorney can help determine if you have a valid claim and, if you do, the appropriate steps to take to protect the principal’s interests.
What Constitutes Self-Dealing for a Power of Attorney?
When an agent acting under a power of attorney uses their fiduciary role to benefit themselves instead of the principal, this is known as self-dealing.
In essence, self-dealing occurs when an agent exploits the authority entrusted to them to financially or personally gain at the expense of the principal’s best interests.
While some acts of self-dealing are obvious — such as an agent transferring the principal’s funds to themselves — many are more subtle and harder to detect. For example, an agent might sell the principal’s property to themselves for below market value with the intent to resell it later for a profit. In this case, the agent clearly is prioritizing their own interests over those of the principal, which constitutes self-dealing.
Agents must always maintain loyalty and transparency when handling the principal’s affairs. If an agent uses the principal’s money for personal purposes without explicit consent, they not only risk losing their position, but they also could be held financially liable for any losses caused by their misconduct.
Common examples of power of attorney self-dealing include:
- Using the principal’s money to fund their personal business ventures or lifestyle
- Altering the principal’s estate planning documents to benefit themselves or their family
- Borrowing money from the principal without express consent
- Using the principal’s credit card for personal purchases
How to Handle Power of Attorney Abuse
Power of attorney self-dealing is a serious form of power of attorney abuse, and it’s critical to take immediate steps to stop the misconduct and recover any assets lost to the abuse.
The methods you have available to address power of attorney abuse depends on the principal’s mental capacity. If the principal is competent, they can revoke the power of attorney document themselves — no one else has the authority to do it for them. However, if the principal lacks capacity — as is often the case in abuse situations — someone else must petition the court to void the document.
Typically, those who can petition the court to void a power of attorney on behalf of an incapacitated principal include:
- Close family members
- Interested parties
- Court-appointed conservators
If it’s proven that an agent misused or harmed the principal’s assets, the petition may also seek recovery of those assets and additional damages. Because of the complexity involved in drafting and filing such petitions, it’s strongly recommended that you retain an experienced attorney to assist.
It’s important to understand that power of attorney documents must be signed by principals who are mentally competent. If a power of attorney is signed after the principal’s incapacity, it won’t be legally valid or enforceable.
When a principal with declining cognition is paired with a dishonest agent, the risk of power of attorney abuse rises significantly. If you suspect a loved one is being exploited, it’s essential to immediately consult a skilled probate attorney.
When Can a Power of Attorney Take Money for Personal Use?
Generally, an agent acting under a power of attorney can only take the principal’s money for personal use if the power of attorney document explicitly authorizes doing so or if the principal — while mentally competent — gives express consent.
That said, most powers of attorney do not grant agents unrestricted access to the principal’s funds for their own benefit.
If an agent believes they have permission to gift money to themselves, they should proceed with extreme caution. Agents are bound by fiduciary duties, so it’s advisable for them to confirm their authority — either directly with the principal (if still of sound mind) or a qualified attorney. As an added safeguard, an agent may also seek court approval before accessing the funds.
As discussed previously, using a principal’s funds for personal use without proper authorization often amounts to self-dealing. If power of attorney self-dealing is proven, it can lead to severe legal and financial consequences for the agent, including removal and personal liability.
Can a Power of Attorney Gift Money to Family Members?
While an agent with power of attorney usually cannot gift a principal’s money to their own family members, they may have the authority to gift money to the principal’s family members and other acquaintances.
If an agent is authorized to gift money on behalf of the principal, it will be specifically stated in the terms of the power of attorney document. In the event the terms of the power of attorney don’t make any mention of an agent’s ability to give gifts, the agent should assume they are not authorized to do so.
In cases where the power of attorney document does authorize gift-giving, there may be limits relating to how much, how often and to whom the agent is allowed to give. For example, the power of attorney may allow for an agent to provide each of the principal’s children with a $1,000 gift every month.
To be on the safe side, agents should go over the terms of their power of attorney with a lawyer to ensure they understand when they are authorized, if at all, to gift money to the principal’s family members and other acquaintances.
Can a Power of Attorney Pay Themselves?
An agent acting under a power of attorney can collect fees for their services so long as the power of attorney document does not prohibit them from collecting fees.
According to California Probate Code section 4204:
“An attorney-in-fact is entitled to reasonable compensation for services rendered to the principal as attorney-in-fact and to reimbursement for reasonable expenses incurred as a result of acting as attorney-in-fact.”
If the power of attorney document does not contain explicit language prohibiting an agent to collect compensation, the agent is likely entitled to compensation for their services. With that said, collecting compensation without clear authority could expose the agent to liability for self-dealing or misappropriating the principal’s assets.
If the document is ambiguous regarding compensation, the agent should consult a qualified attorney to clarify their rights or obtain court approval before taking any fees.
Can a Power of Attorney Withdraw Money After Death?
An agent with power of attorney is never authorized to withdraw money from the principal’s accounts after their death. In fact, once a principal passes away, it is illegal to use a power of attorney at all — all powers of attorney, regardless of type, expire at the principal’s death.
Upon learning the principal has died, the agent should immediately cease using the power of attorney. Any transaction knowingly made with a power of attorney after the principal’s death constitutes an unauthorized use of the document.
Some agents misuse their power of attorney by withdrawing funds after the principal’s death, assuming they won’t be caught since the principal has passed away. In reality, such conduct is rarely overlooked. Personal representatives and trustees usually identify the missing assets and take legal action to recover them on behalf of the estate or trust.
Can a Power of Attorney Borrow Money?
An agent is never permitted to borrow the principal’s money unless the principal has expressly authorized them to do so, or the power of attorney document specifically grants that authority.
That said, an agent can generally borrow funds from a third-party lender on the principal’s behalf, so long as the loan is used for the principal’s benefit. For example, the agent might secure financing to make an investment or cover necessary expenses for the principal.
Can a Power of Attorney Write Checks to Themselves?
An agent may only write checks to themselves if the power of attorney document expressly authorizes self-payment or self-gifting, and the payment falls within the scope of the agent’s fiduciary duties while serving the principal’s best interests.
For example, if the document states, “My agent may compensate themselves at a rate of $30 per hour for administrative and caregiving services,” the agent can generally issue checks to cover their fees — but only if the payments accurately reflect the hours worked.
Transparency is essential. An agent who intends to pay themselves should keep detailed records of every check written and task performed as part of their role, ideally making copies of the checks for the principal’s records.
Can a Power of Attorney Use a Credit Card?
If an agent uses the principal’s credit card to pay for expenses related to their duties under a power of attorney, these charges are generally considered legitimate — provided they serve the principal’s best interests.
In other words, an agent can typically use the principal’s credit card to cover costs such as utility bills, rent, medical expenses, property maintenance and other payments authorized by the power of attorney document. They may also use it to reimburse themselves for expenses incurred while carrying out their duties.
However, agents must exercise caution. It can be tempting to use the principal’s credit card for personal purchases or small incidental expenses but using it for anything unrelated to the principal’s benefit is a misuse of authority and can result in serious legal consequences.
For this reason, it’s essential agents meticulously track all credit card transactions, keep receipts and invoices and maintain accurate records to ensure transparency and accountability to the principal or, if required, the court.
FAQs on Powers of Attorney and Self-Dealing
Want to dive deeper into what constitutes self-dealing for an agent acting under a power of attorney? Want a better handle on their rights and limitations? Explore the frequently asked questions below for additional clarity.
If you are dealing with a specific power of attorney matter and required tailored guidance, we recommend reaching out to Keystone directly. Our legal team is standing by to help.
Can a power of attorney sell property to himself?
Generally, an agent cannot sell property to themselves unless the power of attorney document authorizes such a transaction and the act does not violate their fiduciary duties to the principal. These restrictions exist because an agent selling property to themselves creates a clear conflict of interest.
Suppose a principal instructs their agent to sell a vacation home on the open market. However, the agent, wanting to purchase the property themselves, rejects multiple high offers to buy the property at a lower price. Although the sale technically follows the principal’s instructions, it is not in their best interest, as better offers were ignored. In this scenario, the agent clearly placed their own interests ahead of the principal’s.
If a principal is competent and wishes to allow their agent to buy a property they own, it’s best for the principal to sign the deed themselves to avoid disputes down the road. If the principal lacks competence and the power of attorney is unclear on the issue of sales, the agent should seek court approval before completing the transaction.
Can a power of attorney transfer property to themselves?
For agents acting under a power of attorney, the same principles that govern transferring money to themselves also apply to transferring property.
Specifically, an agent can only transfer property to themselves if the power of attorney document authorizes such a transfer, or if the principal — while mentally competent — provides clear, informed consent for the transaction. That said, it’s crucial that the transfer not violate the agent’s fiduciary duties to the principal.
Can a power of attorney sign checks?
An agent with financial powers of attorney generally has the authority to sign checks on behalf of the principal — provided that doing so is in the principal’s best interest. However, bank policies can vary, so it’s advisable to consult the principal’s financial institution beforehand to ensure all requirements are met.
When signing a check for the principal, there is typically a required format to clearly indicate that the check is signed by a representative rather than the principal themselves.
The proper format for signing a check on the principal’s behalf is:
- The principal’s full legal name
- The word “by”
- The agent’s full legal name
- The phrase “power of attorney” or the abbreviation “POA”
For example:
”Jane Doe by John Doe, POA”
Can a power of attorney take your money and run?
Technically, an agent holding power of attorney — especially if their duties involve access to your financial information or assets — could misuse that authority to take your money. However, such cases are rare due to the severe legal consequences that follow this kind of blatant misconduct.
While fiduciaries are typically more vulnerable to civil liability than criminal charges, egregious acts — like stealing all of a principal’s funds — can lead to criminal prosecution. This potential for criminal penalties acts as a strong deterrent against abuse.
Granting someone financial power of attorney means entrusting them with access to your finances, which can understandably feel risky. The good news is that even if an agent misappropriates your or your loved one’s money, recovery is possible with the assistance of a skilled probate attorney.
For example, Keystone was involved in a case where two individuals posing as caregivers financially exploited an elderly, mentally incapacitated principal by siphoning millions from his accounts through a power of attorney. Keystone not only helped recover the stolen assets but also secured an additional $1 million in damages for the principal’s estate.
Does a power of attorney have a duty to account?
An agent acting under a power of attorney typically does not have a formal duty to account, except under specific circumstances or unless the terms of the power of attorney require them to do so. That said, Probate Code section 4236(a) does require the agent to keep records of all the transactions they enter into on behalf of the principal.
The circumstances under which an agent may be required to account are:
- The principal requests an accounting;
- The power of attorney document specifically requires an accounting and says who should receive it;
- The principal has a conservator, and the conservator requests it;
- The principal has died, and the personal representative or successor in interest requests it; or
- There is a court order requiring an accounting.
The parties that are permitted to examine and copy records kept by the agent are:
- The principal
- The conservator of the principal’s estate (only if the principal is still living)
- The personal representative or successor in interest of the principal’s estate (only after the principal has died)
- Anyone else the court allows, by court order
Still confused about when a power of attorney can transfer money to themselves?
When an agent unlawfully transfers money to themselves under a power of attorney, taking swift action to hold them accountable is often the most critical factor in recovering misappropriated assets and damages. Even if you’re unsure whether the agent’s actions qualify as self-dealing, consulting an experienced probate attorney is a crucial first step.
If you suspect misuse or need assistance requesting an accounting, our knowledgeable probate attorneys are here to guide you, protect your interests and ensure the agent is held responsible for any wrongdoing.
Contact us today to learn how we can help safeguard your assets.
