Is a Power of Attorney Liable for Debts?

When you assign a power of attorney, you, as the principal, authorize another person to serve as your agent to make financial transactions on your behalf. Under normal circumstances, establishing a power of attorney does not create personal liability for the agent, but consult with an attorney who specializes in matters related to powers of attorney with questions about your particular circumstances.

As long as your general power of attorney remains in force, your agent has the authority to access your bank accounts, pay bills and handle other financial obligations on your behalf. She may also hold the authority to make decisions regarding your medical care. But it is important to understand that assigning a power of attorney does not mean that you give up the right to handle your own affairs -- in fact, the agent must act according to your stated wishes as long as you remain mentally competent.

Unlike an agent who holds a power of attorney, a cosigner assumes some level of financial liability. Depending on the nature of the agreement, a cosigner may be equally liable with another for the financial obligation involved or responsible for payment only if the actual purchaser defaults on the contract. In the former case, a creditor can pursue the cosigner for payment when due; in the latter case the creditor must attempt to collect payment from the principal before attempting to extract payment from the cosigner.

Assigning duties to an agent under a power of attorney creates what the law refers to as a "fiduciary duty." That is, your agent must execute her duties in your best interests rather than in her own. While serving pursuant to a power of attorney, the agent should not use her personal resources to conduct financial transactions on your behalf, therefore she does not become financially liable for transactions made on your behalf unless she also agrees to serve as a cosigner for those transactions.

The term "liability" means facing possible legal consequences for personal conduct. Individuals who have acted improperly may be sued in civil court or even tried in criminal court, depending on the nature of the conduct involved. If your agent acts improperly in executing the duties set out under the power of attorney, she may face jail time, in addition to financial liability and other civil consequences. An obvious example of abuse of the power of attorney is when an agent diverts the assets of the principal for her own benefit.

Read More: Abuse of a Power of Attorney for an Incapacitated Family Member