How many times have you seen articles reminding you how important it is to have a power of attorney (POA) document in place, just in case something happens, like an accident of some kind, that leaves you unable to care for yourself or make your own decisions. This is another of those articles, but let’s go a little farther and talk about the structure of a POA.
The attorney who drafts your POA most likely uses a template and fills in a few blanks to customize for your situation. So, it’s a good idea, as with any legal document, to read the thing and make sure it really accomplishes what you want before you sign it.
The most common type of power of attorney is a Durable Power of Attorney. If you become incapacitated, the person you named as your attorney-in-fact, steps in to manage your affairs. That person controls all assets in your name alone. They do not control assets held in trust. That responsibility falls to the successor trustee.
Here are five specifics you need to check in your power of attorney.
Naming Multiple Attorneys-in-Fact
Who will you name as your attorney-in-fact? Will you have more than one? Remember, the person you name will have control of all financial assets in your name. You can name more than one agent, but if you do, specify if they must work together on all decisions or whether they will work independently. If they work together, choose people who can work together harmoniously. If they are to work independently, list the responsibilities of each agent.
Gifting Assets
Is your attorney-in-fact authorized to make gifts? Gifting may be an important tool if it’s necessary to reduce estate taxes or apply for government benefits. But you can get specific in the document and limit who can receive gifts, for example, just your spouse or blood relatives. You can also limit the amount of gifts. It’s common to limit them to the annual exclusion allowed at that time. Also, check to see if your agent can give a gift to himself.
Beneficiary Designations
Does the document allow your attorney-in-fact to change beneficiary designations? If so, the people you want to benefit from your assets, the ones you’ve named on your retirement accounts, life insurance and annuities, and transfer-on-death (TOD) or pay-on-death (POD) accounts, may be excluded from what you wanted them to have. Find out whether your agent has the authority to make such changes.
Trust Amendments
If your estate plan includes a Living or Revocable Trust, does your agent have authority to change your trust? Just like authority to change beneficiary designations, giving your agent the ability to change your trust could mean that the people you want to benefit from the trust and the people you’ve named in the trust document, will not receive what you want to give them or in different amounts than you specified. Most people don’t want their attorney-in-fact to have the power to amend a trust.
Naming a Guardian
The attorney-in-fact often is the one who names a guardian, if needed. The court appoints the guardian, but often it’s the person named as power of attorney. Since that’s the case, make sure the person you name as POA is a person you trust implicitly to always act with your best interest in mind.
You may already have a signed, executed power of attorney document. Review it on a regular basis. Make sure the provisions you’ve chosen are still the way you want them, they are updated for current law, and the person you named to act on your behalf is still the best choice.
This article is presented as information only and should not be considered financial, tax or legal advice.
