By: Anthony J. Enea, Esq.
Enea, Scanlan & Sirignano, LLP
Because many documents such as Power of Attorney are standardized forms that are created by statute, the natural tendency is to assume that they are all alike and contain identical provisions. This is often an incorrect and dangerous assumption.
When meeting with a client and the family of a client, one of the initial inquiries I make especially if there are issues regarding one’s health and mental capacity is to determine whether or not the client has previously executed a durable general power of attorney and to review the provisions of said document. A durable general power of attorney (POA) is an extremely important document that allows one (the principal) to select an agent to handle his or her financial affairs. Obviously, the agent should be someone you have a great deal of trust and confidence in. For example, a married person will generally appoint his or her spouse as the agent and, if he or she is single, a child(ren). More than one person can be appointed, and in many of instances two co-agents may be advisable.
If the POA is “durable” the agent will be able to act even if the principal is subsequently disabled or incapacitated. However, even if the POA is durable, the actions an agent can undertake are controlled by the explicit terms of the POA. For example, the agent’s ability to gift/transfer the assets of the principal to himself and/or others is in New York only permitted if the POA specifically grants the agent the authority to do so. Thus, necessitating close examination of the language permitting gifting and the transfer of the principal’s assets.
It is not uncommon for a client to believe that he or she has executed a POA with broad gifting power. However, once the POA is closely examined, it is often revealed that the POA does not allow the agent to make gifts in amounts in excess of $14,000 per person per year.
The above stated limitation on gifting can have dire consequences if the principal becomes disabled/incapacitated, and the agent needs to engage in asset protection planning and/or estate tax planning for the principal. The failure to include such broad gifting authority can result in the agent not being able to make the transfers necessary to make the principal eligible for Medicaid (home care and/or nursing home) and/or reduce potential estate tax liability of the principal.
In many instances if a sufficiently broad POA is not in existence, and the principal is no longer competent to execute a new POA, it may be necessary to have a guardian appointed by the court for the incapacitated person. This is a proceeding commenced in the courts where the court will need to determine that the individual is an incapacitated person, and wherein the permission to make any transfers of his or her assets will require prior court approval. This is an expensive, and time consuming proceeding that can easily be avoided by the signing of a durable POA with broad gifting powers, and other powers being given to the agent other than the statutory powers found on most POA forms.
For example, a broadly drafted POA could include language that permits the agent to create either a revocable and/or irrevocable trust on behalf of the principal. This is a power that can be of significant value for both estate planning and long term care planning on behalf of the principal and his or her family. The ability of the agent(s) of the POA to do virtually all that the principal could do if he or she were competent can result in many cases the savings of hundreds of thousands of dollars.
In conclusion, I urge you to closely examine the language contained in the POA you have executed to insure that it is sufficiently broad. Additionally if you have not executed a POA, I would urge one to do so.