In a financial power of attorney, you designate a trusted decision maker (agent or attorney-in-fact) to act on your behalf if you become disabled or unable to manage your financial affairs. Depending on the provisions you choose to include, your agent may have the power to buy and sell property, the power to invest, and powers regarding your retirement benefits. This three-part series address the pros and cons of giving powers to give your agent, you should carefully consider the following three powers in particular: (1) the power to gift, (2) the power to make or change your estate plan, and (3) the power to prosecute and defend legal actions.
The Power to Gift. Depending on how it is written, the power to gift authorizes your agent to make gifts of your money and property to any person or organization on your behalf. On the one hand, this power could be quite beneficial because it can enable your family to accomplish necessary Medicaid and other public benefits eligibility planning after you become incapacitated. It also gives your agent the ability to continue your charitable giving practices such as tithing to your church or donating to your favorite charities or scholarship funds. In addition, if a need arises after you can no longer manage your affairs, it allows your agent flexibility to financially help family members the way you would have.
On the other hand, you must exercise caution when including the power to gift, because it may invite financial exploitation by the agent. An agent could be tempted to make substantial gifts to themselves or their loved ones to the detriment of your chosen beneficiaries. Abusing the power to gift can disrupt an entire estate plan. Therefore, you may consider limiting the power to gift by specifying that your agent may not make gifts that disrupt your estate plan’s essential provisions or that your agent make gifts only to a trust that preserves your estate plan’s main provisions, such as a Medicaid Asset Protection Trust. To create a check on the agent, consider naming an independent third party to approve any gifts the agent makes.
In a financial power of attorney, you designate a trusted decision maker (agent or attorney-in-fact) to act on your behalf if you become disabled or unable to manage your financial affairs. Depending on the provisions you choose to include, your agent may have the power to buy and sell property, the power to invest, and powers regarding your retirement benefits. This three-part series addresses the pros and cons of giving powers to give your agent, you should carefully consider the following three powers in particular: (1) the power to gift, (2) the power to make or change your estate plan, and (3) the power to prosecute and defend legal actions.
The Power to Make or Change Your Estate Plan. This power is sensitive because it also invites potential exploitation by an agent who could create or alter your estate plan so that they receive all of your property or more than the share you want them to receive. On the other hand, such power can allow a trusted agent to be able to alter an estate plan in a way and under circumstances that you would have wanted but are now unable to do yourself. For example, if a child develops an addiction after Mom and Dad become incapacitated, this power will allow the agent to alter the estate plan to include provisions that would let the child receive their inheritance with restrictions that would be helpful in treating their addiction and not detrimental in their current situation. Thus, the power to make or change an estate plan could allow a beneficial change for the loved one who is going through a messy divorce, facing bankruptcy, or dealing with an addiction.
Again, when including such a power, you may want to consider including limiting language so that, if any agent makes a change to your estate plan in a way that improperly benefits themselves, they must seek approval from a disinterested third party.