A power of attorney helps assure that a family member, friend, or other trusted advisor can act on your behalf, handle your assets, and manage your affairs if you ever become incapacitated. There are certain issues you should carefully consider before signing this important estate planning document.
Powers of attorney
The person who has power of attorney, known as the attorney-in-fact or agent, controls assets only in your name. These documents do not govern trusts because the successor trustee named in the trust will control those assets.
A durable power of attorney is more commonly used. It is valid when it is signed and remains valid if you become incapacitated later. A springing power of attorney is harder to use and springs into effect when you become incapacitated.
Selecting an attorney-in-fact is a difficult but important decision because the agent will control your financial assets and handle your affairs. Two individuals can be named. If you name two individuals, however, you must designate whether one person can act independently, or whether they must act together.
You may authorize your agent to make gifts on your behalf. This may be helpful for tax reduction or if you will apply for government benefits in the future.
The power of attorney can place restrictions on who can receive gifts such as limiting gifts to your spouse or descendants. The amount of the gift may be limited. The annual exclusion amount, $15,000 per year, is typically used. You should specify whether agents may give gifts to themselves.
Determine whether your agent can change beneficiary designations on assets such as life insurance and retirement accounts. Most people usually do not authorize their agent to change these beneficiaries.
If you established a revocable trust, you should determine whether your agent may change beneficiaries or the amounts they receive. Most people do not grant this authority to make major changes to trusts because it could hinder their estate planning goals and disinherit family members.
The power of attorney may also identify a guardian in case one is needed. Courts appoint the guardian who is usually the attorney-in-fact.
These documents require careful consideration and should be reviewed and updated every few years. Attorneys can advise you on this document and draft one that meets your needs.