When a principal demands a financial accounting

| Feb 15, 2019 | Firm News

Suppose your cousin is in the army reserves and the military deploys her to active duty in another country. She asks you to help your aunt, who is your mother’s sister, with tasks she can no longer perform for herself. She trusts you to help her mother with her financial affairs.

You agree to pay your aunt’s bills, taxes, medical expenses and anything else she may need. You agree to take your aunt to the grocery store to pay for the food she chooses. Your cousin states she knows you will be honest in handling her mother’s money.  

Questions you may have about your duties

Your cousin drives you and your aunt to their attorney’s office. You find that signing a legal document is both exciting and scary. The attorney explains your duties in taking care of your aunt’s financial affairs, but it is hard to remember everything she said. Most people acting as power of attorney know they will do ordinary things like pay bills, property taxes and credit card charges for items the principal needs, but you do not remember everything the lawyer said. You hope you do not make any mistakes.

Keep complete and careful records

Suppose you pay your aunt’s bills, her taxes and anything else she needs. On one shopping trip, your aunt wants a very expensive pair of shoes. She insists you buy them for her with her credit card. You want to guard your aunt against making foolish financial decisions. Luckily, you both wear the same size in shoes. Later that day, you return the expensive shoes and try on some that will fit your aunt and cost much less. When it is time to dress, the caretaker says your aunt did not notice the switch you made, that she loves her new “expensive” shoes.

Several months later, your aunt’s daughter completes her military service and comes home. She asks if you would give her an account of the financial activity you performed as your aunt’s POA. You are glad you kept all the receipts. You hand your cousin an envelope with everything in it, and she takes the receipts to the attorney.

How things can go wrong

You get a phone call from the attorney stating your aunt claims you “stole” her expensive shoes! Your cousin finds a record of the expensive charge on a bill for the credit card you used to pay for them. She says you may be in legal trouble for theft. You explain the situation, but you forgot to keep the exchange receipt. Fortunately, the caretaker remembers what happened, speaks up on your behalf to the attorney and clears up the misunderstanding.

The biggest mistake a POA can make is not to keep detailed records, so you are wise that you saved everything for the most part. If you ever serve as a POA again, use a simple financial program to track everything. Also, organize records by month. Keep all bank and credit card statements, tax forms and payments, as well as a copy of the POA you signed. Never hesitate to protect yourself if you serve as an agent and the principal accuses you of dishonest financial activity.