Responsibilities of an Agent under a Power of Attorney

The concept of a power of attorney sounds simple but there is a lot to know about this important part of an estate plan, says the Rushville Republican in “Financial power of attorney responsibilities.” Whether you are named as someone’s power of attorney or you are considering who to name on your behalf, it is important to understand the terminology, the role and the responsibilities.

The person who signs the POA is called the “principal” and the person to whom authority is given, is often referred to as the “attorney in fact” or the “agent.”

What powers are given to the person who becomes the agent?  The POA provides what powers the agent will have, but generally the idea is the agent can do whatever the individual would do. That includes opening bank accounts, buying and selling property, managing investments, filing taxes, cashing checks and closing accounts. An agent is a considered a fiduciary of the principal, which means that he has a legal duty to act in the principal’s best interest.

The POA generally is not recorded in a courthouse. If you are signing a document for the principal that does have to be recorded with the county, like a deed to a house, then you will need to present and record the POA with the county recorder, before the document can be recorded. The laws in your state or county may be different, so check with your estate planning attorney to be certain.

The POA should remember to keep his assets and the principal’s assets separate. Money should not be intermingled in bank accounts or investment accounts. This is a very important point, since the fiduciary responsibility is a serious matter. The POA can be changed or revoked by the principal at any time, as long as she is mentally competent.

The POA ends with the death of the principal. It is meant to be used as a helpful tool, while the person is living. After the person dies, the executor takes over as the personal representative of the person’s estate.

Speak with your estate planning attorney about making the decisions as to who should be your Power of Attorney. This is a very important role and it must be someone who you can trust implicitly and who is also willing to take on the responsibilities.

 

Reference: Rushville Republican (Jan. 22,2019) “Financial power of attorney responsibilities”

Continue ReadingResponsibilities of an Agent under a Power of Attorney

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?

Role of Insurance in Estate Planning

Insurance in estate planning addresses liquidity, tax concerns and is even a vehicle for affordable long term care coverage.

I often discuss life insurance when working with a client on their estate plan and the role of insurance in estate planning in general.  Some have term life insurance policies from when they are young, others whole life policies promoted to them as money available into late retirement, and even a few solely because of the tax benefits to life insurance.  It’s possible that life insurance may play a much bigger role in your estate planning than you might have thought, says a recent article in Kiplinger titled “Other Uses for Life Insurance You May Not Know About.”

If you own a life insurance policy, you’re in good company—just over 50% of Americans own a life insurance policy and more say they are interested in buying one. When the children have grown up and it feels like your retirement nest egg is big enough, you may feel like you don’t need the policy. However, don’t do anything fast—the policy may have far more utility than you think.

Tax benefits. The tax benefits of life insurance policies are even more valuable now than when you first made your purchase. Now that the SECURE Act has eliminated the Stretch IRA, most non-spouse beneficiaries must empty tax-deferred retirement accounts within ten years of the original owner’s death unless some other exception applies. Depending on how much is in the account and the beneficiary’s tax bracket, they could face an unexpected tax burden and quick demise to the benefits of the inherited account.

Life insurance proceeds are usually income tax free, making a life insurance policy an ideal way to transfer wealth to the next generation. For business owners, life insurance can be used to pay off business debt, fund a buy-sell agreement related to a business or an estate, or fund retirement plans.

Even more, life insurance is often a very good tool to pay estate taxes.  This is true for two reasons.  First, the tax has to be paid in dollars, so an infusion of cash from a life insurance policy provides funds to pay it without selling off other assets such as real estate or business interests.  Second, life insurance is an easy asset to include an irrevocable trust.  It would be held outside of your estate (thus doesn’t make your estate tax bill go up) and for most insurance you don’t need immediate access to it.  See here for more information:  https://www.galliganmanning.com/the-irrevocable-life-insurance-trust-why-should-you-have-one/

What about funding Long Term Care? Most Americans do not have long-term care insurance, which is potentially the most dangerous threat to their or their spouse’s retirement. The median annual cost for an assisted living facility is $51,600, and the median cost of a private room in a nursing home is more than $100,000. Long-term care insurance is not inexpensive, but long-term care is definitely expensive. Traditional LTC care insurance is not popular because of its cost, but long-term care is more costly. Some insurance companies offer life insurance with long-term care benefits. They can still provide a death benefit if the owner passes without having needed long-term care, but if the owner needs LTC, a certain amount of money or time in care is allotted.

Financial needs change over time, but the need to protect yourself and your loved ones as you age does not change. Speak with an estate planning attorney about the role of insurance in estate planning for you.

Reference: Kiplinger (July 21, 2021) “Other Uses for Life Insurance You May Not Know About”

Continue ReadingRole of Insurance in Estate Planning