An agency account is a financial account where you keep full legal ownership of the money or assets while giving another person, called the agent, permission to manage them on your behalf. The agent can sign checks, place trades, pay bills, or handle whatever else you authorize, but the account and everything in it still belongs to you. People set one up when illness, travel, deployment, or the sheer complexity of their holdings makes hands-on management impractical.
How the Arrangement Works
Three roles are involved. You are the principal, the owner of the assets and the source of every power the agent has. The agent manages those assets within the limits you set. Third parties, such as banks, brokerages, and counterparties in transactions, deal with the agent and rely on the authority you’ve granted.
The agent’s authority comes in two flavors. Actual authority is what you explicitly grant, usually in a written document such as a power of attorney or a custodial agreement. That document should spell out which transactions the agent can handle. Authority can also be implied, covering steps reasonably necessary to carry out the stated duties. If you authorize someone to manage a rental property, hiring a plumber to fix a burst pipe is implied even if the document doesn’t list it.
There’s also apparent authority, which protects third parties. If your words or conduct lead a reasonable outsider to believe your agent has certain powers, you can be bound by what the agent does even if you never actually granted those powers. That’s why cutting off an agent takes more than a private conversation, a point that matters when you want to end the arrangement.
What the Agent Can and Cannot Do
The law treats an agent as a fiduciary, which is a higher standard of conduct than ordinary business dealings require. These duties attach automatically the moment the relationship is created, and breaking them exposes the agent to personal liability.
- Loyalty. The agent must act solely in your interest. Self-dealing, secret profits, and conflicts of interest are all off-limits. An agent who routes trades through your brokerage account to benefit a friend has breached this duty even if you lost no money.
- Care. The agent must handle your assets with the prudence a sensible person would apply to their own finances. Perfection isn’t required, but carelessness is a breach.
- Obedience. The agent must follow your lawful instructions and stay inside the boundaries of the authority you granted. An agent authorized to manage a savings account cannot decide to move the balance into speculative investments.
- Accounting. The agent must keep accurate records of every transaction and be ready to show you where the money went. Sloppy recordkeeping is itself a breach, even when nothing is missing.
Where Agency Accounts Show Up
The label covers several familiar arrangements, each with its own structure.
Custodial Brokerage Accounts
When you open a brokerage account, the broker-dealer typically acts as custodian, holding your securities for safekeeping and executing trades on your instructions. You remain the owner of every share. FINRA requires brokerages to identify every person authorized to transact on the account, and discretionary accounts, where the broker can trade without asking you first, require additional paperwork including a signed authorization on file.
Escrow Accounts
An escrow account is a narrower kind of agency arrangement in which a neutral third party holds funds or property until specific conditions are satisfied. Real estate closings are the everyday example: the escrow agent holds the buyer’s deposit and releases it to the seller only after the contract’s requirements are met. The agent’s authority is confined to the escrow agreement’s terms.
Power of Attorney Accounts
A power of attorney is the legal document most often used to set up an agency relationship for personal financial management. A general POA grants broad authority over your financial affairs. A special or limited POA restricts the agent to specific actions, such as selling one piece of property or handling a single bank account.
Durability is the detail to pay attention to. Under the Uniform Power of Attorney Act, adopted in most states, a POA is durable by default, meaning it stays in effect if you later lose mental capacity. In states that haven’t adopted the uniform act, you generally need to include specific language making it durable. A non-durable POA terminates the moment you lose capacity, which is exactly when you’re most likely to need it.
How It Differs From a Joint Account or a Trust
Two arrangements often get compared with agency accounts, and the differences come down to ownership.
A joint bank account makes both people co-owners with equal access. Either person can deposit, withdraw, or spend without the other’s permission. Both are equally responsible for debts tied to the account. And depending on state law and the account type, the surviving co-owner typically inherits the balance when the other dies. An agency account gives the agent none of that. The agent manages the money but owns no part of it, and the agent’s personal creditors cannot reach your funds.
A trust is a separate legal entity you create by transferring assets into it. The trustee manages those assets under the trust document’s terms, and the trust keeps existing after you die. An agency relationship ends when you die. If you need someone to manage your affairs beyond your lifetime, a trust is the right tool. If you need someone to handle your bank account while you recover from surgery, an agency account is simpler and cheaper.
Ownership, Liability, and Taxes
Everything in the account belongs to you. Cash, securities, real property, and any income those assets generate are your legal property. Your agent’s name may appear on paperwork, but that grants no ownership. If the agent is sued or files bankruptcy, the assets in your agency account are not available to the agent’s creditors.
When the agent acts within the authority you granted, you bear the contractual consequences. A lease the agent signs on your behalf is your obligation, not theirs. When the agent steps outside that authority, the picture shifts. You may not be bound at all, and the agent can face personal liability to the third party on the theory that the agent implicitly warranted having the authority to make the deal. The agent is also personally liable to you for any breach of fiduciary duty, and a court can require the agent to restore your property to the value it would have had absent the violation, plus your legal costs.
Taxation follows ownership. All income, capital gains, interest, and dividends generated inside the account are taxable to you, no matter who manages the account or executes the trades. You report the income on your personal return. When the account is set up under your name and Social Security number, financial institutions issue Forms 1099 directly to you. In some arrangements the agent receives the 1099s as a nominee and must then file nominee 1099 returns with the IRS, allocating the income to you and giving you a copy.1Internal Revenue Service. 2025 General Instructions for Certain Information Returns The agent’s own tax obligation is limited to reporting any compensation they receive for managing the account.
Setting One Up
Start with the legal document that creates the relationship, usually a power of attorney or a custodial agreement. Define what the agent is and isn’t authorized to do in specific terms. Vague language invites disputes. If you want the agent to trade stocks but not withdraw cash, the document should say exactly that.
The financial institution will verify identities for both you and the agent before opening the account. Under federal banking rules, that means collecting each person’s name, date of birth, address, and taxpayer identification number, typically verified with an unexpired government-issued photo ID.2eCFR. 31 CFR 1020.220 – Customer Identification Program Individual institutions often ask for more. The compliance department will review the executed legal documents, and a certified or original copy of the POA is usually kept on file. Once approved, the agent gets operational access that matches the scope of authority in the document, whether that means check-writing, online banking, or trading privileges.
One detail people often skip: name a successor agent. If your primary agent later becomes unable or unwilling to serve and no successor is designated, the POA can go dead at the worst possible time. A successor provision keeps the document usable and saves you from drafting a new one from scratch.
How It Ends and How to Revoke It
The relationship is not permanent. You can revoke the agency at any time by notifying the agent in writing. Cutting off the agent’s actual authority is only half the job, though. You also need to notify every third party the agent has been dealing with, including banks, brokerages, and insurance companies that have the POA on file. Until those institutions get notice, they may keep honoring the agent’s instructions, and you could still be bound. Some jurisdictions require filing a formal revocation notice with a government office, so check local rules before you start.
Death ends the agency immediately. A power of attorney, even a durable one, expires the moment you die. The agent has no authority to close accounts, pay bills, or make any financial decisions after that. Handling a deceased person’s finances requires a different legal role, such as being named executor in the will or being appointed administrator by a court. This is where families most often get tripped up: the agent who managed an aging parent’s finances for years has zero authority the day the parent passes away.
Losing mental capacity terminates a non-durable POA automatically. A durable POA survives incapacity, which is the reason to have one. If no durable POA exists when someone loses capacity, the usual fallback is a court-supervised guardianship or conservatorship, which costs far more and takes far longer than setting up a durable POA would have.
Protecting Yourself From Agent Abuse
Handing someone this kind of authority carries real risk. An agent with broad powers can drain bank accounts, sell property, and redirect investments. If the agent is dishonest, recovering the money can be hard or impossible.
The law offers several layers of protection. An agent who breaches fiduciary duty must restore your property to its prior value and reimburse your attorney fees and costs. Courts can review an agent’s conduct at the request of anyone with a sufficient interest in your welfare, which includes family members and, in many states, adult protective services agencies. Banks and other third parties can refuse to honor a POA when they have a good-faith suspicion the agent is engaged in abuse.
Practical safeguards reduce the risk before anything goes wrong:
- Grant only the authority the agent actually needs. A special POA for a single transaction is safer than a general POA over everything you own.
- Name co-agents who must act together for large transactions. That creates a built-in check.
- Require regular accountings. Include a provision in the POA that the agent must give periodic financial statements to a designated third party, such as another family member or an attorney.
- Choose someone you genuinely trust. No legal safeguard substitutes for character.
If you think an agent is misusing authority, revoke the POA immediately and notify all financial institutions in writing. Most states have criminal statutes covering financial exploitation, embezzlement, and fraud, and adult protective services agencies can investigate suspected abuse of vulnerable adults.