Borrowing Money as a Power of Attorney: What You Need to Know

Rachel Curry

Rachel Curry

Published on: 26 May, 2022

Updated: 29 September, 2022

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With a great power of attorney comes—you guessed it—great responsibility! 💯 If you plan on becoming a power of attorney (or you already are one), know that you hold certain responsibilities and rights when it comes to moving money. In many cases, transferring or borrowing money on behalf of someone else is off limits. 🙅🏽‍♀️ However, there may be certain instances where it’s legal and approved.

What is a power of attorney?

A power of attorney (POA) is a big part of estate planning for many individuals. 

What is an estate, you ask? 🙇‍♀️ It’s all the money, property, and other assets belonging to a person, typically an elder or deceased individual.

Knowing this, a POA is a legal document that appoints an individual the legal authority to be in charge of one’s estate. This agreement may cover real estate property, medical decisions, financial transactions, writing checks, or whatever else may be relevant to the person’s estate. 🏡

The grantee (aka principal, or the person who’s estate is managed) appoints the POA (aka attorney-in-fact). They may choose to appoint a caregiver or someone in their family. 

Quick side note: A power of attorney is different than a conservatorship, in which the court makes the decision and appoints a conservator to manage your affairs. 👨🏾‍⚖️

There are four types of power of attorney agreements:

  1. General power of attorney: A broad-reaching POA agreement, it covers all financial matters until the principal becomes incapacitated, dies, or revokes power.
  2. Durable power of attorney: This type of POA lasts even after the principal becomes incapacitated. This may include health care decisions as part of the attorney-in-fact responsibilities.
  3. Special or limited power of attorney: This limits POA powers to a certain time frame or asset class.
  4. Springing durable power of attorney: In certain states, adding a springing element to a durable POA agreement allows the document to become legally binding as soon as a specific event occurs (such as disability).

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Can a power of attorney transfer money to themselves?

In most cases, individuals listed as a power of attorney cannot transfer money to themselves or borrow money from an estate on behalf of the principal.

The exception to this rule is if the grantee is aware of it and explicitly allows it in the original written power of attorney document.

An appointed power of attorney holds a legal fiduciary responsibility, meaning they must make medical, financial, and other important decisions that are in the principal’s best interests. Acting outside of the terms of the original POA agreement by unlawfully borrowing money from an estate can lead to severe consequences.

The one thing you need in order to transfer money as a power of attorney

Here’s one crucial thing you need in order to legally borrow money as a POA: Express written consent from the individual you’re representing or a third-party representative.

There are a handful of stipulations that this written consent must follow:

  • The money that you borrow or transfer can be cash or cash assets (aka assets you can easily convert to cash).
  • The grantee must write and sign the agreement themselves (alternatively, an approved third-party representative can do so).
  • The grantee must be mentally and legally competent.
  • It’s best to include the money transfer terms in the original POA document (by legal standards, the court may not accept future amendments containing this information).
  • A notary public should notarize the original power of attorney form (while not legally necessary, this bolsters the loan or transfer terms, which are less common in a POA).

Potential consequences of unauthorized transfers to yourself with power of attorney

What happens if you misuse your responsibilities as power of attorney? If you borrow money but fail to get written consent according to the above conditions, you may be committing a crime.

The relationship of a power of attorney and principal is inherently fiduciary, meaning the POA has the distinct responsibility of acting in the best interest of the person they’re representing. U.S. law “treats breach of fiduciary duty as a tort [aka a wrongful act or infringement] that subjects a fiduciary to liability to the beneficiary for harm caused by the breach,” according to Duke Law.

Another consequence is fraudulent conversion, which occurs when the POA wrongfully converts assets over to themselves. Additionally, if the POA deceives the grantee, it may be grounds for fraud charges.

A final consequence in many states is elder abuse, which comes into play when a POA takes advantage of a vulnerable elder.

In all, you must take the process seriously when borrowing money as a power of attorney. Financial decisions are important decisions and you should treat them as such!

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What are your alternatives for borrowing money?

If you don’t have express written permission to borrow money from an estate in an original POA agreement, what other options do you have?

If you need a loan to take care of financial affairs, take care of real estate transactions, or pay medical bills, consider a loan from a friend or family member. 🤝🏻 As a power of attorney you may have the legal freedom to make such financial transactions. Fortunately, tools like Pigeon Loans lets you create and track loans that come from friends or family. Plus, the platform provides you with legally binding documentation stating the loan amount, interest rate, payment dates, and other key information which will serve you well if you are a financial power of attorney. 🐣

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Bottom line on borrowing money as a power of attorney

Transferring or borrowing money from someone you represent as a power of attorney is a big deal. Make sure you have explicit written permission from a competent individual in any designation of a power of attorney. Otherwise, you may face a lawsuit or even criminal charges—even if you didn’t have ill intent.

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