A power of attorney (also referred to as POA) is in effect when the grantor authorizes a grantee to handle any combination of legal, financial and/or health decisions on behalf of the grantor. The particulars are written into a power of attorney document.
For example, a clause in a power of attorney document might read: My agent may take all actions that I could including transacting all forms of business on my MasterCard number—–.
You might grant a power of attorney for several reasons including:
- You don’t want to deal with the administrative tasks of paying bills
- You want to make sure that your financial wishes are carried out if you become ill or incapacitated
- You may be out of the country for a period of time and unable to handle your financial affairs
Essentially, the concept is that you can authorize as much or as little activity as you want when granting a power of attorney. The POA may only be good for estate planning or if the grantor becomes ill. It may be valid for only certain transactions like disposing of property, handling an estate or managing credit lines. It is also only in effect during the timeframe specified in the power of attorney document.
Impact on Your Credit History
At first, you might be flattered to be granted power of attorney. After all, it is a show of absolute trust by the grantor who may be your father, mother, a sibling or other close family member or friend. However, having power of attorney means you have significant responsibilities. It’s natural to wonder how it could impact your credit history.
The good news is that signing to pay bills or other financial obligations for someone else, does not make you liable for any debts. The grantor is still liable for those and it may impact his/her credit history. But, it will not impact your credit history at all. You do however, need to be cautious.
For example, if you are an adult child spending part of your father’s money to take care of him in his time of need, you should take care not to authorize expenses on credit that you know cannot be repaid. In fact, make sure you do the following to protect yourself:
- Keep your personal finances separate from your father’s (in this case). That means do not even charge a Snickers bar on his card when you’re purchasing medical supplies at the local drug store.
- Be faithful to your fiduciary duty of always acting in his best interests.
- Tell everyone who needs to know that you are acting as your father’s power of attorney for all of his business dealings.
- When signing your name, write the words “Attorney in Fact” on the document after your signature.
If your sister somehow runs up $5,000 on your father’s credit card before you stop her, your father will be liable for those debts, not you. And by taking the prudent steps above you can protect yourself from being accused of any misconduct.
The three things to remember about having power of attorney (especially regarding credit cards) are, that as a grantee:
- You are not liable for any debts incurred by the grantor even if you are charging on the credit cards of the grantor.
- You must exercise fiduciary responsibility while administering the credit cards.
- It’s a good idea to take some basic steps to protect yourself from being accused of irresponsibility such as always acting in the best interests of the grantor and letting everyone know about your role.