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Estate Planning to Improve Your Financial Power of Attorney

Last update on: Aug 10 2020
Estate Planning

It’s one of the most overlooked and understated pieces in most peoples’ estate planning strategy…

The Power of Attorney.

And it’s so much more than simply deciding who manages your affairs when you can’t.

Check out Part 1 of this article here: Power of Attorney: The Most Important Document in Your Estate Plan

So today let’s review more tips on how to navigate this vital step in the estate planning process.


Estate Planning Strategies: #1

Which actions can the agent take? 

The standard power of attorney is unlimited, giving the agent the authority to take any action on your behalf. Even so, you might want to spell out actions you definitely want the agent to be able to take.

For example, many states say there is no implied right to make gifts in a general power of attorney. The IRS indicates gifts made under a power of attorney without specific gifting authority won’t be treated as gifts for tax purposes.

The assets will be included in the principal’s estate. If you want the agent to be able to make gifts, the power of attorney should clearly state that.

Also, you might want to include some details. Do you want to limit gifts to the federal annual gift tax exclusion per person, or do you want to allow more flexibility?

It is a good idea to specifically name the people to whom gifts can be made. Many estate planning specialists recommend that gifts to the agent or agents not be allowed. That reduces the problems in the Brooke Astor case and others.

Standard power of attorney terms often limit gifts to lineal descendants (children and grandchildren). But that means gifts can’t be made to siblings, parents and others who might need help.

When gifts are allowed to children or other family members, do you want to require that gifts to different family members be equal in amount or allow the agent’s discretion?

A related issue is whether the agent can fund accounts, such as 529 college savings accounts and Roth IRAs, for family members or other people. If you want to allow this power, spell out the details in the power of attorney.


Estate Planning Strategies: #2

Establish some oversight.

Agents under power of attorneys generally aren’t accountable to anyone unless someone files a court complaint.

One simple type of oversight is to require that one or more people you trust be sent copies of the monthly account statements or have online access to them.

These people can be relatives or your financial professionals, such as an attorney or accountant.

They’ll be able to review the statements and perhaps spot suspicious or unusual transactions. They will also see whether or not the agent is performing the duties such as paying your bills.


Estate Planning Strategies: #3

Appoint a protector.

A protector is becoming more common with trusts but can also be used with power of attorneys in many states.

The protector has the right to review actions taken by the agent and can replace the agent at any time for any reason.

There’s always the potential for abuse or collusion, so you have to choose a protector carefully just as you have to select the agent with care.


Estate Planning Strategies: #4

Limit actions.

Some power of attorneys specifically prohibit certain actions. A common exclusion, as mentioned, is not to allow gifts to the agent and to be specific about who else can and can’t receive gifts. Some power of attorneys don’t allow gifts or sales of certain property.

When a business is involved, the agent might be prohibited from trying to manage details of the business or sell the business.

The same holds for some commercial real estate. In those cases, you’ll have someone familiar with the business or real estate manage it.

When you have a valuable collection or other property that requires special knowledge or expertise, you might want to prohibit the agent from doing anything with it unless the agent has that expertise.


Estate Planning Strategies: #5

Make your intentions clear.

To supplement the power of attorney, you can draft a letter that makes clear your intentions about when the agent should act and your desires about what the agent will and will not do.

Both you and the agent sign the letter. The letter isn’t legally binding, but it can affect the agent’s actions, be used when others question the agent’s actions and be evidence of your intention if the courts become involved.

Your best protection is to choose carefully when appointing an agent or agents. You have to establish a balance when developing your power of attorney.

When you have too many layers of protection, it might be difficult or time-consuming for the agent to act, and good people might decline to be your agent.


August 2022:
Congress Comes for your Retirement Money
A devastating new law has just been enacted, with serious consequences for anyone holding an IRA, pension, or 401(k). Fortunately, there are still steps you can take to sidestep Congress, starting with this ONE SIMPLE MOVE.

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