A power of attorney allows a person, known as the principal, to give authority to an agent to handle some or all of their financial affairs. This could include managing the principal’s assets while they are temporarily unavailable, making all of their financial decisions if they become incapacitated, or a wide range of other scenarios. Powers of attorney are an important part of the estate planning process in Michigan. For an agent, a power of attorney could provide a significant amount of control over the principal’s life. Agents must use this power for the benefit of the principal, and not for their own gain.

What Is a Power of Attorney?

A power of attorney is a written document that names one or more agents, also known as attorneys-in-fact, and gives them some degree of authority over the principal’s finances. A related document, sometimes known as a medical power of attorney, gives an agent power to make medical decisions for the principal. In Michigan, a medical power of attorney is more commonly known as a “designation of patient advocate.” In this post, we will focus on the type of power of attorney that grants authority related to finances.

A carefully-drafted power of attorney will define what an agent can and cannot do. Michigan law identifies an agent’s duties, and provides remedies when an agent oversteps the powers granted to them.

What Is a Durable Power of Attorney?

Under Michigan law, a durable power of attorney is one that remains in effect if the principal becomes incapacitated. Suppose, for example, that a principal owns property that requires ongoing attention, such as maintenance and repairs, bills that need to be paid, and so on. The principal is going to be traveling out of the country, and will not be able to see to these needs. They can sign a power of attorney that allows an agent to handle those issues in their name. The power of attorney document can specify that it terminates upon the principal’s return home. It would also, however, become invalid if something happened to the principal that rendered them unable to make decisions for themselves.

A power of attorney that becomes invalid upon the principal’s incapacitation defeats the entire purpose of having one as part of one’s estate plan. Michigan law therefore sets out requirements to make a power of attorney “durable.” This includes specific language stating that it “is not affected by the principal's subsequent disability or incapacity, or by the lapse of time.”

What Are an Agent’s Duties?

An agent’s duties are the same whether a power of attorney is “durable” or not. Because of the substantial amount of trust that a principal places in an agent, Michigan law views the agent as a fiduciary. Aside perhaps from parenthood, a fiduciary duty is the highest level of responsibility that one person can owe to another. A fiduciary must represent the principal’s interests faithfully and avoid any conflicts of interest.

Michigan law identifies some of an agent’s duties, including the duties to:

1. Make reasonable efforts to follow the principal’s instructions whenever possible;
2. Keep the principal informed of their activities on the principal’s behalf, and provide them with an accounting of their activities and expenses; and
3. Maintain records of every action they perform as an agent, including receipts and other documentation.

A power of attorney document might include specific instructions regarding certain assets. For example, the document might instruct the agent to sell a car owned by the principal, but only if the agent is able to do so for a certain minimum price. The agent cannot sell the car for below that amount. The agent must inform the principal if they sell the car, or if they do not think the preferred sales price is achievable. Finally, the agent must keep records of everything they do in trying to sell the car, along with records of the actual sale.

The statute prohibits agents from certain actions, unless the principal authorizes them to do so in writing. An agent cannot:

1. Give away any part of the principal’s assets; or
2. Establish an asset that the agent and the principal jointly own.

Using the example above, an agent cannot give the car away without the principal’s permission. This could be authorization in the power of attorney itself, or permission given by the principal later, as long as they are still capable of agreeing to something like that and the permission is in writing. The agent also cannot use the principal’s assets to buy something for themselves, even if they buy it in the principal’s name.

What Are a Principal’s Remedies if an Agent Abuses Their Authority?

If an agent violates any of the restrictions set by law or contained in the power of attorney, they could be liable to the principal for breach of fiduciary duty. This is a legal claim that allows someone to recover damages, including money that the principal lost because of the agent, or that the agent obtained as a result of their wrongful actions.

Elder law attorney Rebecca J. Braun practices with Mobile Legal Services, PLLC in Southeast Michigan. She is available to answer your questions and address your concerns about estate planning, Medicaid eligibility, and other legal issues. She will travel, free of charge, to clients in Oakland, Washtenaw, Wayne, Livingston, and Southern Macomb Counties. To schedule a free and confidential initial assessment, please contact us today through our website or give us a call at (734) 407-7657.