Power of attorney is a basic standard document in which you name a person (agent) to handle legal and tax matters if you can't. Call a general practice attorney and they'll likely quote you a price of $100-$350 for such a document. But what are you really getting? In some cases a typed version of a standard pre-printed form with a few modified paragraphs. Not the planning you want or need. A poorly drafted power can be a financial disaster for you and your heirs. Consider the following issues. If you have a power, take a look and see how (if) these matters are dealt with. Even as a layperson, you will probably quickly discern significant issues.
o Springing Power:
Can your agent sign your checks today, or does the power require that you first be disabled before your agent's rights become effective (spring)? This prevents your agent from having any authority until you are actually disabled and need assistance. Many people prefer this approach. What does your power say about this? If the mechanism that springs your power into effect isn't clearly delineated in the document, your agent might need significant legal involvement to convince a bank that your agent has the authority to act. Not exactly the quick intervention you intended when you signed the power. Some powers might provide that a letter signed by your attending physician stating you are unable to handle your affairs will suffice. An improvement, but you're not home yet. The Health Insurance Portability and Accountability Act of 1996 (HIPAA), 42 USC 130d and 45 CFR 160-164, includes significant restrictions on any physician disclosing your private health information without the your approval. So, your power should include an express waiver of these restrictions. If it doesn't, get it revised! You might also indemnify the physician for issuing any such letter in good faith. Fear of a lawsuit can make a letter difficult to obtain.
o To Gift or Not To Gift:
That would have been Shakespeare's question if he'd been a tax attorney. A key clause in your power is the right to make gifts. If your power doesn't expressly authorize your agent to give away your assets, they probably can't. Do you always want a gift provision? No. So on one end of the planning spectrum your power could expressly state that your agent doesn't have the authority to make gifts to minimize the risks of abuse. Many standard powers permit gifts without limit! The right to unlimited gifts makes your power more significant then your will! Yet you probably treat your will with great deliberation, and your power as a mere formality. In other cases the right to make gifts could be crucial to your planning. On the opposite end of the planning spectrum your power could authorize your agent to give away all of your assets. Why no limit? To facilitate elder law planning, tax minimization and probate avoidance. There's lots of ground in between no gifts and unlimited gifts. What point on the spectrum is right for you? Does the provision in your power get it right?
o How Much to Gift:
If your power authorizes your agent to make gifts, but you don't want the risk of unlimited gift giving, the document could limit gifts to the maximum gifts your agent can give away for you without any gift tax consequences, $12,000/year, plus direct payments of tuition and medical expenses without limit. The tax laws increase the $12,000 maximum for inflation. Does your power provide for that? Many powers permit annual gifts but not payments for tuition or medical costs. You could authorize unlimited gifts to your spouse to facilitate planning. Code Section 2503(b) and 2503. The power should authorize your agent to split gifts with your spouse. That permits your spouse to gift $24,000 to one person (donee) and treat it as if half were from you to avoid gift tax implications. Does your power permit this? Many forms don't include the right to make gifts to Section 529 college savings plans. To assure that these plans can be funded under your power an express clause should be included.
o Gift Equalization:
So you have three kids. One is single. One is married with no children. And the other has rabbit genes: a spouse, 6 kids (all married), and 21 grandchildren. $12,000 per person annual gifts will create a huge imbalance. Do you limit the gifts? To what amount? Do you give the agent the right to make $12,000 annual gifts since it costs more to raise and care for all those children? Do you include a make up bequest in your will to equalize your two children who don't have descendants? Do you simply leave it up to the children to make it right on their own? The bottom line, you have to evaluate what is appropriate for you and your family and be sure your power provides accordingly. The odds of a standard form having exactly what is appropriate for your family is pretty slim. Read the gift provision in your existing power and see what it says.
Some say the divorce rate for first marriages is 50-60%+, and for second marriages 75%+, but few people address this issue in their powers. Might your soon-to-be ex-spouse use your power without your knowing to transfer all of your accounts out of your name? If the marriage gets rocky, destroy all original powers and consult your attorney about formally cancelling them.
o Business Document Coordination:
Be sure your power has detailed provisions giving your agent the authority to deal with a wide array of business and investment issues. When using a power to plan for disability, don't overlook coordination of appropriate business documents. If you have a professional practice or business corporation draft the necessary minutes to assure at least a second signatory on business bank accounts. Shareholder, partnership and operating agreements should address disability planning to assure that successor officers, directors and managers can serve. Even a one member LLC can create a succession plan through a one-member operating agreement designating you as current manager, and naming a replacement if you are disabled.
o Cooperation with Professionals:
A major reason for your signing a power is to assure someone can handle matters when you're disabled. Often the first call an agent makes is to your attorney to ask for guidance and financial information. Attorney ethics and in particular the duty of confidentiality your attorney has may inhibit your attorney from fully cooperating with your agent. To address this your power could include an express provision authorizing your attorney (and other professionals) to discuss any matters with your agent. If your power, doesn't, an update might be in order.
o Make it Practical:
Your agent will need your Social Security number and key financial, tax and other data. Be sure its available. Have you spoken to your agent about the appointment and responsibilities? The best document is of limited use if the agent is uncertain as to what to do.
Powers of attorney are almost always treated as a footnote to most estate and financial plans. To the contrary, a power can be your most important planning tool. Great care must be taken to appropriately address vital provisions in a manner that accomplishes your goals. Relying on standard documents might be cheap and quick, but you wouldn't go to the Golden Arches for your child's wedding, so don't use a form power for what might be your most important document.
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