Make Your Power Of Attorney Checkup A New Year’s Resolution

Introduction

New Year’s is a great time to commit to reviewing and cleaning up your estate planning. One of the most important and common estate planning documents is a power of attorney. As part of your New Year’s resolutions, commit to making sure you and your loved ones (including any children or others you are responsible for who are 18 or older) have this document in place and that it is current.

A Power of Attorney is a key estate planning document that authorizes a designated person, called your “agent”, to handle certain tax, legal and financial matters. Every adult should have a current power of attorney. Below are some of the considerations when reviewing your power of attorney document.

Original Document

Do you know where the original power is? While many will accept electronic copies, it may not be sufficient in some instances so you have to have the original. Do you know where it is? A bank safe deposit box is not likely to be optimal as it may be impossible for the agent who needs it to get into the box without the power of attorney that is in the box! That sounds like a problematic “Catch 22.” Instead consider storing the original in a fireproof safe in your home. Some folks give the power to their attorney and sign instructions as to when it can be released. That might be a reasonable safeguard if your attorney is willing to play gatekeeper and you don’t have people that are 100% trustworthy to name. Others might not be enamored with this idea.

Agents

As with many legal documents, especially in the estate planning area, the best document on the planet might not be of great help if you don’t have a reliable and honest person to name in it. Powers are no exception. Who did you name as agent to handle your financial situation? Are they still appropriate? Is your ex-brother-in-law still listed as the initial agent? Review the people listed and be sure that those are still the choices you would make. Have you named sufficient successor agents? Successors are important to pick up the baton if something happens to the agent listed before them.

Gifts

Authorizing the agent to make gifts is considered a “hot” power and will not generally be inferred and must be expressly provided for in the document. Also, what was appropriate for a gift provision when you signed your power may not be appropriate now. Your wealth may have changed substantially. For example, if you had a modest estate when you signed a power but not your estate is significant, your view of a gift power may be different. Another consideration is the fluctuation of the tax laws. If the estate tax exemption was only $1 million years ago when you signed the power, and in 2023 it is close to $13 million perhaps gift provisions are no longer needed or appropriate. In contrast, if your estate is modest permitting an agent to gift all of your assets away may be useful for Medicaid planning. Is there one (or more) people you provide financial assistance to? If so a gift provision permitting gifts to them may be essential if that help is to continue if you are incapacitated. Should your agent be permitted to make large gifts to use up any remaining estate tax exemption you might have? That might make sense to provide flexibility for estate tax planning before the exemption is cut in half in 2026 but that could be an authorization to move almost $13 million in assets! So, the decision is not standard and must be made to provide appropriate flexibility and appropriate safeguards.

Coordination

The reality is that most people do not take that important step back and look at all the various documents they have signed over the years giving different people power over their finances. These vital considerations are often merely “lost in the sauce.” If you have a revocable trust has the planning and documentation of your revocable trust and power of attorney been coordinated? Did you coordinate the person named as a designated representative on long term care coverage, the emergency contact given to your broker, the person authorized to assist with your Social Security, etc. with the agent named in your power of attorney? What about people named as agents on bank or brokerage account forms? Think of the conflicts that can be created if different people are named in overlapping positions and especially if those named don’t get along.

Retirement Assets and Life Insurance

For many people their retirement assets and/or life insurance comprise a large part or even most of their wealth. So, the provisions in a “form” power of attorney should be viewed with caution unless you have affirmatively made certain they work for your satiation. How broad is the authorization given your agent to change beneficiary designations on retirement assets, life insurance and other assets? Is there a potential conflict between the agent named and other heirs? How broad or limited should that authority be? Have circumstances changed since you first signed the power document? With many significant changes to the tax rules affecting retirement plans in recent years (Secure Act, and various regulations interpreting it) it might be important to give an agent wide flexibility to update beneficiary designations. But the tricky part is when that authorization is too broad it might give an agent who has ulterior motives an opportunity for nefarious acts. Where to strike the balance is not simple.

State Law

If you have multiple homes which state law should apply? Might it be beneficial to complete a power of attorney on a statutory or standard form used in each state you have a residence? Can that be done without creating conflicts and coordination issues? For example, if you live in New York you might choose to sign a New York statutory power of attorney form. Because this is dictated by New York law if you adhere to the exact details of the statute banks and others will be more likely to (and may in fact have to) accept the power of attorney your agent gives them. But what if you have a vacation home in Florida and California. There laws are different and perhaps you and your estate planner might opt to have you sign “standard” forms in each state and to be kept in a safe in each home. That might make it easier for the agent’s authority to be respected in each. But this can be tricky so you should consult with an attorney in each state and coordinate all steps.

Businesses and Professional Practices

Are you a family business owner, or perhaps a CPA or therapist in private practice? It may be advisable to have a separate power of attorney for certain business matters. Business planning and documents (shareholder agreements, operating agreements, partnership agreements, etc.) need to be coordinated with the provisions and agents in a power of attorney to address business matters. It might not matter who you name as your agent or what powers you give them as the documents governing the business may control who can act for you if you are incapacitated. When have those provisions last been reviewed? If you operate a solo professional practice the professional ethics may require that you have a separate practice power naming an appropriate licensed professional to act in the event you cannot. You might prohibit the agent under your general power from exercising authority over professional practice matters. But whatever you do, don’t stop with merely the power document. You might have legal and ethical obligations to have a succession plan in place and take other steps to assure clients are protected if you fall ill or are disabled.

Conclusion

There are a dozen or more other common provisions in most powers of attorney. The bottom line is that you should be sure you have a valid document in place and read it carefully to be sure it fits your circumstances. Also, as suggested above, state laws different pretty significantly so be certain your power of attorney reflects the laws of the state where you reside and will be using the power, not some generic form. And, as with all estate planning documents and steps, the document is only part of what you must do. If your agent had no information as to the assets you have, expenses they may have to pay if you are ill, passwords and other information, the document alone won’t provide the protection you really want.