An agent acting under a power of attorney (POA) may spend substantial time and effort managing the principal’s financial affairs. Is the agent entitled to be paid for that work? What happens if the POA is silent about compensation? And what role does the court play in determining an agent’s compensation or reimbursing the agent for expenses?
The answers are found primarily in North Carolina General Statute 32C-1-112, which is part of North Carolina’s Uniform Power of Attorney Act. This post walks through the rules governing an agent’s compensation and reimbursement for expenses and highlights the circumstances in which a court may be asked to determine what an agent should receive from the principal’s assets.
Is an Agent Entitled to Compensation?
Not every agent chooses to receive compensation for serving under a POA. Many agents serve without compensation, particularly when the agent is the principal’s spouse, child, or other family member.
While the principal has capacity, the principal may choose to compensate the agent outside the terms of the POA. The principal may also address compensation directly in the POA.
When the POA specifies either the amount of compensation or the method for determining compensation, the agent is entitled to the compensation provided for in the POA. G.S. 32C-1-112(a).
The more interesting question arises when the POA does not say how much the agent should be paid or says nothing about compensation at all and the principal lacks capacity to decide whether to pay the agent.
What If the POA Is Silent About Compensation and the Principal Lacks Capacity?
If the POA does not specify the amount of the agent’s compensation or a method for determining it, the agent does not have unilateral authority to decide what constitutes appropriate compensation after the principal becomes incapacitated. Instead, following the principal’s incapacity, the agent is entitled to receive reasonable compensation as determined by the clerk of superior court. G.S. 32C-1-112(b); 32C-1-116(a)(3).
A proceeding under Chapter 32C to determine an agent’s compensation falls within the original, exclusive jurisdiction of the clerk of superior court. G.S. 32C-1-116(a)(3). The proceeding is commenced and conducted in accordance with the procedures applicable to estate proceedings under G.S. 28A-2-6. G.S. 32C-1-116(c).
Before awarding compensation, the clerk must make two determinations:
- The principal is incapacitated; and
- The compensation requested by the agent is reasonable. G.S. 32C-1-112(b).
First Question: Is the Principal Incapacitated?
The clerk’s authority to determine reasonable compensation under G.S. 32C-1-112(b) arises only after the principal’s incapacity.
For purposes of Chapter 32C, “incapacity” means the principal is unable to manage property or business affairs because the principal:
- has an impairment in the ability to receive and evaluate information or to make or communicate decisions even with the use of technological assistance; or
- is missing, detained (including incarceration in a penal system), or outside the United States and unable to return.
This definition is important because incapacity under Chapter 32C is not the same thing as an adjudication of incompetency under Chapter 35A. The question in a compensation proceeding is whether the principal meets the statutory definition of incapacity applicable under Chapter 32C.
Second Question: Is the Requested Compensation Reasonable?
Once the clerk determines that the principal is incapacitated, the clerk must determine whether the compensation requested by the agent is reasonable.
G.S. 32C-1-112(b) identifies a number of factors relevant to that determination. The clerk must consider:
- the degree of difficulty and novelty of the tasks required of the agent;
- the responsibilities and risks involved in serving as agent;
- the amount and character of the principal’s assets subject to the POA;
- the agent’s skill, experience, expertise, and facilities;
- the quality of the agent’s performance;
- comparable charges for similar services;
- the time the agent devoted to administering the principal’s assets;
- time constraints imposed on the agent in administering the principal’s assets;
- the nature and cost of services the agent delegated to others;
- when more than one agent is serving, the reasonableness of the total fees paid to all agents; and
- any other relevant factors. G.S. 32C-1-112(b) (incorporating the provisions of G.S. 32-59, which incorporates the provisions and factors set out in G.S. 32-54 related to compensation of trustees).
The statute therefore does not establish a fixed percentage, hourly rate, or other formula for compensation. The inquiry is fact-specific.
For example, managing a single checking account and paying a handful of recurring bills may warrant a different level of compensation than managing multiple investment accounts, rental properties, business interests, tax matters, and other substantial assets over an extended period. The total amount of assets the agent manages matters, but it is only one factor. The nature and complexity of the agent’s work, the time devoted to that work, the agent’s expertise, and the quality of the agent’s performance also matter.
An agent seeking compensation therefore should be prepared to present evidence that allows the clerk to evaluate these statutory factors. Depending on the circumstances, that evidence might include records of the time spent performing services, descriptions of the tasks performed, information about the assets managed, documentation of work delegated to professionals, and evidence of comparable charges for similar services.
What About the Agent’s Out-of-Pocket Expenses?
Compensation for an agent’s services is distinct from reimbursement of expenses the agent incurs while acting for the principal.
Unless the POA provides otherwise, an agent is entitled to reimbursement of expenses properly incurred in administering the principal-agent relationship. G.S. 32C-1-112(c).
An agent seeking reimbursement through the clerk must submit a written request. The clerk must determine that the expense was properly incurred in the administration of the principal-agent relationship before approving reimbursement. G.S. 32C-1-112(c) (providing that G.S. 32-59 governs the reimbursement of expenses incurred by the agent); G.S. 32-59.
Notably, unlike the court’s determination of an agent’s compensation, the expense reimbursement provision does not limit reimbursement to periods when the principal lacks capacity. Thus, if the POA does not provide otherwise, it appears that an agent may seek reimbursement from the clerk by filing a written request regardless of whether the principal has capacity.
As with a proceeding to determine compensation, a proceeding to determine an agent’s expenses falls within the clerk’s original, exclusive jurisdiction under Chapter 32C and is commenced and conducted in accordance with estate proceedings as set out in G.S. 28A-2-6.
This distinction between compensation and reimbursement can be important in practice. Compensation pays the agent for the agent’s services. Reimbursement repays the agent for an expense the agent properly incurred while administering the principal-agent relationship. An agent may therefore be entitled to reimbursement of expenses even when the agent serves without compensation.
May the Court Reduce or Deny an Agent’s Compensation or Reimbursement of Expenses?
Yes. An agent under a POA is a fiduciary, and a violation of Chapter 32C constitutes a breach of fiduciary duty. G.S. 32C-1-117(a). A breach might occur, for example, when an agent exceeds the authority granted by the POA or fails to act in good faith.
If the agent breaches a fiduciary duty, one remedy available to the court is to reduce or deny the agent’s compensation or reimbursement of expenses. G.S. 32C-1-117(b)(7).
For purposes of these remedies, the “court” may be a superior or district court hearing a civil action for breach of fiduciary duty or the clerk of superior court presiding over a Chapter 32C proceeding properly before the clerk. G.S. 32C-1-116(a), (b).
Whether compensation or expenses should be reduced or denied will depend on the circumstances. Relevant considerations may include:
- whether the agent acted in good faith;
- whether the breach was intentional;
- the nature and seriousness of the breach;
- the amount of loss to the principal;
- whether the agent restored any loss; and
- the value of the services the agent otherwise provided to the principal.
The availability of this remedy is significant. An agent’s entitlement to compensation and reimbursement of expenses does not exist in isolation from the agent’s fiduciary obligations. The quality and propriety of the agent’s conduct may affect not only the amount of “reasonable compensation” under G.S. 32C-1-112 but also whether compensation or reimbursement should be reduced or denied as a remedy for a breach of fiduciary duty.
Chapter 32C also gives the court another tool in proceedings involving alleged fiduciary misconduct. In a judicial proceeding involving a claim for breach of fiduciary duty, the court may, in its discretion, tax costs and expenses, including reasonable attorneys’ fees, against either party or apportion them among the parties. G.S. 32C-1-117(h).
A Few Practical Takeaways
The statutory framework suggests several points for principals, agents, attorneys, and clerks to keep in mind.
First, the POA instrument matters. A principal who wants to establish how an agent will be compensated can address the issue directly in the POA. Doing so may eliminate the need for a later judicial determination of reasonable compensation after the principal becomes incapacitated.
Second, incapacity matters when the POA is silent. The clerk’s authority to determine reasonable compensation under G.S. 32C-1-112(b) arises after the principal becomes incapacitated. The clerk therefore may need to make a threshold determination regarding incapacity before reaching the amount of compensation.
Third, there is no one-size-fits-all measure of reasonable compensation. The statute directs the clerk to consider numerous factors. The size of the principal’s estate is relevant, but so are the difficulty of the work, the time involved, the agent’s expertise, comparable charges, and the quality of the agent’s performance.
Fourth, documentation helps. An agent who anticipates seeking compensation or reimbursement should maintain records of the work performed and expenses incurred. Those records may become particularly important if the principal later becomes incapacitated and the agent must ask the clerk to determine reasonable compensation or if the agent seeks reimbursement of expenses from the clerk.
Finally, compensation and fiduciary responsibility go hand in hand. An agent who breaches a fiduciary duty may see compensation or reimbursement reduced or denied. The statutory right to reasonable compensation is therefore accompanied by the agent’s obligation to exercise the authority granted under the POA consistently with the fiduciary duties imposed by Chapter 32C.
For clerks, these proceedings require more than simply approving an agent’s requested dollar amount. When the POA does not establish compensation, the clerk must determine whether the principal is incapacitated and, if so, what compensation is reasonable under the statutory factors. When reimbursement of expenses is requested, the clerk must determine whether the claimed expenses were properly incurred. And when an agent’s conduct is at issue, the clerk may also consider the remedies available for breach of fiduciary duty under G.S. 32C-1-117 and reduce or deny compensation or reimbursement in the case of a breach.
Those provisions together provide the framework for answering a deceptively simple question I found in my inbox just this week: When someone steps in to manage another person’s affairs under a POA, when is an agent entitled to payment, and how much?
