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”