A power of attorney (POA) is a legally binding document that lets someone else (an agent) act for you (the principal) in the event that you’re not able to do so yourself, whether you’re incapacitated or deceased. The person you appoint can be anyone: a lawyer, a nurse or a friend or relative you trust.
But while someone with power of attorney is responsible for major decisions on your behalf — like where your belongings go after you die — there are some things they aren’t responsible for, including much of your debt.
What happens to someone’s debt when they die?
When you die, any remaining debt obligations transfer to your estate and must be settled by the trustee or executor of the estate, who is appointed to manage your final affairs.
The executor is responsible for using estate assets to pay off debts, says attorney Chas Rampenthal, attorney assist segment leader at LegalZoom. “There’s an order of debt priority that’s generally the same in most jurisdictions,” he says. “Fees must be paid first, such as probate, attorney and estate taxes; then costs of interment or burial; then federal taxes; outstanding medical expenses; taxes on property and then unsecured creditors like credit cards or lines of credit.”
Is a person with power of attorney responsible for debt?
For the most part, the person you appoint as your agent is not responsible for your debts when you die. However, there are a few exceptions:
- They were a co-signer on a loan with you. If you co-signed a loan or jointly took one out, you’re each responsible for the outstanding balance. “So, if one of you dies or is unable to pay, the entire amount is still owed,” says Rampenthal.
- They hold a joint account with you. If both of your names are on an account application, then the debt is equally the survivor’s debt and must still be paid, says Rampenthal.
- They’re your spouse and you live in a community property state. Nine states follow community property laws: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin. In these states, spouses share equal responsibility for debts. “Under these state guidelines, spouse property is viewed as communal — both assets and debts — so you may be on the hook for debt after a loved one dies,” says Adem Selita, CEO and co-founder of The Debt Relief Company in New York City. “In this scenario, everything is essentially a joint account.”
Depending on where you live, other exceptions could apply.
What is the purpose of a power of attorney?
A power of attorney isn’t a person, but rather a document that gives someone the power to act on your behalf in case you die or become incapacitated. You can name someone to make decisions for you when you can’t.
“A power of attorney appoints a person or company to manage your affairs like property, finances or medical,” says Rampenthal. “There are different types of power of attorney, including general power of attorney, which provides broad powers; specific power of attorney, for a set number of things; and healthcare power of attorney, which allows a person to make medical decisions for you.”
A financial power of attorney can come in handy in a couple of ways. For instance:
- A service member is deployed overseas: A financial POA can manage a service member’s property and pay their bills while they’re away.
- Estate planning: A POA can help you plan for potential events in the future, like a debilitating brain injury or dementia. Your agent can handle your affairs in advance.
Can a person with power of attorney write checks to themselves?
Depending on how the power of attorney agreement is written, it is possible for the person in this role to write a check to themselves.
“Your power of attorney can write checks to themselves if they have access to your checking account and if you included check writing in the details and duties of the power of attorney letter,” says Juan Carlos Cruz, founder of Britewater Financial Group in New York City. “This is why it’s so important to choose a power of attorney wisely and draw up a power of attorney letter to possibly add security features to prevent behavior like this.”
An agent with power of attorney is also able to accept checks on behalf of the principal. In particular, they can accept checks from:
- Doctors and health care companies
- Brokerage firms and investment companies
- Other types of businesses
How to handle inherited debt
In the rare event that you inherit debt, there are several ways to tackle such a situation. First, check whether you’re legally obligated to pay the debt. If, for instance, you’re inheriting unsecured credit card debt, you can confirm what you’re responsible for by reviewing your credit reports.
“Checking all of your credit reports will allow you to see what you are contractually obligated to pay,” says Selita.
Next, determine whether you can afford to pay the debt. If repaying will be difficult, try reaching out to the creditor; you may be able to negotiate a lower repayment.
“Provide documentation to the creditor and explain the situation in full,” says Selita. “If you have also lost income, going from joint income to single income household, you should also explain this to the creditor. All these things matter.”
Finally, you may want to look into liquidating any assets you inherited, such as a retirement account, to pay off the outstanding debt, says Rampenthal, of LegalZoom.
Additional things to consider
If you’re planning to grant power of attorney, keep in mind the capacity your agent will be working in. Stay safe and remember:
- Appoint someone you trust: A POA shouldn’t be with someone you’ve never met. You should create a power of attorney with a lawyer, nurse, friend or relative with mutual trust. If you’ve only known someone a short time, you might not be working with someone who has your best interests in mind.
- Power of attorney fraud is real: If you don’t do your homework, your potential agent could create a forged POA document or give themselves more power than you’d like to hand over. Power of attorney abuse means that they can have access to your bank and other financial assets, possibly depleting them.
- Tell others about your POA: Don’t keep your power of attorney between you and your agent. Instead, share the name of your agent with your doctors, relatives and others so they can keep tabs on this person’s actions.
- A power of attorney is flexible: You can make changes to your power of attorney, revoke access or cancel your POA anytime if you feel that your agent isn’t working in your best interests.
- An extra barrier might be helpful: You can require in your power of attorney document that your agent report to another person when making financial transactions, like paying bills or selling property.
Since a power of attorney agent has the potential to abuse their power, it’s important to take safety precautions before and during the process of creating a POA. Take steps to protect yourself now to avoid fraud later on.