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”

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Power of Attorney: Planning for Incapacity

Powers of attorney let you plan for your incapacity.
A power of attorney names a person to make decisions for you under rules that you establish, and ensures someone can handle your affairs if you cannot.

Without a durable power of attorney, helping a family member or loved one who cannot act on their own becomes far more difficult and stressful. Powers of attorney, also known as POAs, typically give the agent specific powers to conduct the principal’s (person creating the power of attorney) financial business, explains the Aiken Standard in the article “The durable power of attorney.”

For financial powers of attorney, there are different types, including non-durable, springing and durable. A non-durable POA is time limited.  It either expires at the end of a set amount of time or upon the death or incapacity of the principal.  Non-durable powers of attorney are typically used for specific circumstances, such as real estate closings or for transferring car titles.

The durable power of attorney is in effect from the moment it is executed. It is not revoked if the person becomes incapacitated (hence the term “durable”), nor by the passage of time. The person can alter or terminate a durable POA at any time before he or she lacks capacity, however, and it does end when the person dies.

Springing powers of attorney become effective at a future date. They “spring” into power, according to the terms of the document. That may be the occurrence of a particular event, like the person becoming incapacitated or disabled. They can be problematic, as there will be a need to prove that the person has become incapacitated and/or disabled.

The advantage of the durable power of attorney is that it remains in effect even after the person has become impaired. You can choose to let your agent act right away or make it springing as described above.  It is often prudent to make them effective immediately so that if time is of the essence (i.e., there is an emergency that requires quick action), there is no need to prove incapacity or that a condition has occurred.

In addition to a financial POAs, there’s also a healthcare power of attorney, which is a separate document that gives the named person the authority to make medical decisions when the principal is not able to do so.  There are also several other documents which plan for incapacity, such as living wills and HIPAA releases, which should be considered as well.

In Texas, powers of attorney rules are strict, so how they are drafted is very specific.  They provide for many powers or restrictions to the agent which the principal should consider when preparing a power of attorney, such as whether his or her agent should be compensated, whether the agent can make gifts and naming successor agents if the first cannot serve.

Power of attorney documents should be created and executed, along with a complete estate plan, long before an individual begins having problems in aspects of their lives.  These documents are essential as part of planning for incapacity.  See my past article for more detailed information.  https://www.galliganmanning.com/estate-planning-when-faced-with-a-serious-illness/

When they are signed, it is necessary for the person to have mental capacity. They have to be able to be “of sound mind.” If they have been diagnosed with dementia or Alzheimer’s, it is necessary that all these documents be prepared as soon as possible.

Without a durable power of attorney, family and friends won’t be able to make important financial decisions, pay bills, make healthcare decisions and engage in any kind of Medicaid planning. If a person does not create a power of attorney and then suffers a health problem which makes them unable to handle their own affairs, anyone who wanted to take on any of these responsibilities would have to go to court and be appointed the person’s guardian. It’s much easier to tackle these tasks in advance, so that the family can act on their loved one’s behalf in a timely and effective manner.

Reference: Aiken Standard (August 24, 2019) “The durable power of attorney”

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