Estate Planning Isn’t Just For The Elderly

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Not All Powers of Attorney are Created Equal

On Behalf of | Sep 23, 2014 | Asset Protection Planning

When meeting with a client and his or her family, one of the first inquiries I make is to determine whether or not he or she has previously executed a durable general power of attorney (POA) and, if so, what provisions it contains. Since a POA is, like many legal documents, a standardized form created by statute, the natural tendency is to assume that they are all the same and contain identical provisions. This, however, is often an incorrect and dangerous assumption.

A POA is an extremely important document, especially if there are issues regarding one’s health and mental capacity, which allows an individual (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 or children. 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. The actions an agent can undertake, however, are controlled by the explicit terms of the POA — making close examination of the document’s language necessary. For example, the agent’s ability to gift/transfer the assets of the principal to himself and/or others is in New York is only permitted if the POA specifically grants the agent the authority to do so.

It is not at all 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.

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 an expensive and time consuming proceeding that can easily be avoided by signing a durable POA with broad gifting powers before such incapacitation occurs. It is also important to include any other powers deemed prudent beyond 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. 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 ensure that it is sufficiently broad. Additionally, if you have not executed a POA, I highly recommend you do so before it’s too late.