Which Powers should a Power of Attorney Include?

Most clients have at least heard of powers of attorney (POA), and I find that many people with an existing estate plan have one.  However, I find the biggest problem with powers of attorney is not the lack of one, but having one without sufficient powers or provisions to work well for the client.  For that reason, you need to know powerful this document is and identify its limits. A recent article from Forbes titled “4 Power of Attorney Clauses You Need To Focus On” addresses many key provisions to consider in the power of attorney.

First, as a primer, the POA is a document that assigns decision making to another person during your life.  People often do this for when they become incapacitated in life, but also for convenience, such as a spouse having authority to interact with a bank, signing at a remote real estate closing and so on.

The agent acting under the authority of your POA only controls assets in your name. Assets in a trust are not owned by you, so your agent can’t access them. The trustee (you or a successor trustee, if you are incapacitated) appointed in your trust document would have control of the trust and its assets.  Also, POAs are for lifetime delegation of decision-making, so they cease to be effective when you die.

If you want more background on what they are, see this classic blog.  https://www.galliganmanning.com/power-of-attorney-planning-for-incapacity/

With all of that said, here are three key provisions to consider within your POA to make it effective for your circumstances.

Determine gifting parameters. Will your agent be authorized to make gifts? Depending upon your estate, you may want your agent to be able to make gifts, which is useful if you want to reduce estate taxes or if you’ll need to apply for government benefits in the future. You can also give directions as to who gets gifts and how much.

In recent years I’ve discussed the possibility of extensive gifting quite a lot so that wealthier clients can consider making large gifts for estate tax purposes. In elder law cases this is one of the most key provisions in a POA as it provides options for long term care planning.

Can the POA agent change beneficiary designations? Chances are a lot of your assets will pass to loved ones through a beneficiary designation: life insurance, investment, retirement accounts, etc. Banks tend to build products that provide for this, which is good, but does raise issues within your estate plan.  Do you want your POA agent to have the ability to change these? In most states, Texas included, your POA needs to expressly provide for this power.  So, it is important to consider if you will need this power to adequately control assets in the future.

Can the POA create or amend a trust? Depending upon your circumstances, you may or may not want your POA to have the ability to create or make changes to trusts. This would allow the POA to change the terms of the trust, and potentially beneficiaries depending on the terms of the POA.  It is also worth considering this if you’ll need long term care in the future as these provisions assist with qualified income trusts which are helpful in Medicaid planning.

The POA is a more powerful document than people think, and that is especially true with powers crafted to fit your wishes and needs. Downloading a POA and hoping for the best can undo a lifetime of financial and estate planning. It’s best to have a POA created that is uniquely drafted for your family and your situation.

Reference: Forbes (July 19, 2021) “4 Power of Attorney Clauses You Need To Focus On”

Continue ReadingWhich Powers should a Power of Attorney Include?

Is It Time for an Estate Plan Checkup?

Because life brings many changes, you should have an estate plan checkup at least every three years.
Because life brings many changes, you should have an estate plan checkup at least every three years.

After you’ve met with an attorney to do your first Will, it is easy to assume that you have checked estate planning off of your to do list forever. The reality is not so simple. Not only do tax laws frequently change, but so does your life. The smallest change could have a big impact on your estate plan. That’s why it’s a good idea to go through an estate plan checkup at least every three years to ensure your estate plan still accurately reflects your values, needs, and hopes for your legacy.

Even if you have already created an estate plan you feel confident about, circumstances surrounding your decisions may change. Marriages end, children grow up, and serious illnesses occur. When laws change, some estate planning techniques can become outdated.

An estate plan checkup should include a look at how your accounts and property are titled to see if any changes are necessary. Joint ownership of your property, for example, may be a good idea or a bad idea, depending on the circumstances. Births or deaths of loved ones may lead you to change your beneficiaries. The person you named as one of your trusted decision-makers (for example, a trustee, executor, agent under a financial power of attorney, or agent under a medical power of attorney) may no longer be the best option due to relationship changes or physical relocation. Such changes can occur without your thinking of the effect they have on your estate plan, so it is worth a periodic estate plan checkup to make sure your your plan still reflects your wishes.

Significant financial change can also be a good reason for an estate plan checkup. If you have taken on a new job, bought a house, or made new investments, you will want your estate plan to reflect these changes. If you have a trust, the only way to ensure that your accounts and property are kept out of probate is to have all of your accounts and property appropriately funded into the trust or naming the trust as beneficiary.

Changes in the laws affecting how assets are left to beneficiaries seem to be happening with more and more frequency. For example, the recent SECURE Act and the elimination of the lifetime stretch for nonspouse beneficiaries shows how important it is for you to talk with your estate planning attorney  about the effect this new law may have on the beneficiaries of your retirement accounts.

Life is ever changing, and many changes may have a great impact on your estate plan. If you or your family have undergone any changes since your estate planning documents were originally created, now is the perfect time to reach out to your estate planning attorney for an estate plan checkup.

If you think it may be time to consider a revocable living trust instead of a Will, you may be interested in https://www.galliganmanning.com/will-vs-living-trust-a-quick-and-simple-reference-guide/.

Continue ReadingIs It Time for an Estate Plan Checkup?