Or How Not to Get Burned by your Power of Attorney
The Financial Power of Attorney authorizes someone to act on your behalf when you’re incapacitated, tired, or traveling in Europe when your house burns down. It can be as broadly or narrowly written as you want. What it should not be is a form that you download from your computer or get from a friend and then sign blindly. The Power of Attorney document is just what it says—powerful.
Ask any estate attorney what document has the most potential to be abused or misused and they will tell you it is the Financial Power of Attorney. In 2015 the Pennsylvania Legislature addressed this issue by deciding that certain “HOT POWERS” would need to be expressly given in a person’s Power of Attorney. If your Power of Attorney document is dated after January 1, 2015, it must specifically grant these powers to your agent (your “POA”) or your agent cannot exercise them.
The HOT POWERS include the power to create certain trusts (including an irrevocable asset protection trust); to change rights of survivorship on bank accounts and other assets; to change a beneficiary designation including on life insurance and retirement accounts; to delegate authority granted under the Power of Attorney; to exercise certain fiduciary powers of the Principal; and to disclaim property. You probably don’t understand what some of those powers mean, which makes it all the more important to talk them over with your attorney.
Many of the HOT POWERS become more important as you age. That means you should take great care now in deciding who to give the powers to. The decision should involve an in-depth conversation with your estate attorney. Your estate attorney is equipped to evaluate your situation and help you balance your personal goals and objectives, along with your plans for your loved ones, while keeping in mind your specific financial situation.
A common drafting option involves the gifting powers. You may wonder why your agent should have the power to give away your money. Sometimes you may want your agent to give your children and grandchildren money each year, or to continue your church giving. Sometimes giving away some of your money will make sense tax wise. And when your family is trying to qualify you for a government program like Medicaid for long-term care, having the power to transfer your funds will be critical.
It is also not uncommon to give certain HOT POWERS to your original agent (such as your spouse, or a trusted child, or your closest sibling), but limit the power of the successor agent to give away your money. You may also choose to have your successor agent get the approval of additional family members before exercising some of the HOT POWERS. These carefully crafted limitations can help create transparency among family members while curbing potential abuse of the powers.
At the end of the day you want to give your agents the power to accomplish your goals and objectives, but you want to craft the document as carefully as possible to prevent yourself or other loved ones from getting BURNED.