We never know what life has in store for us. We are always at risk of becoming temporarily or permanently incapacitated due to accident, illness, or aging.
A power of attorney allows you (the “principal”) to give someone else (your “agent”) the authority to act and make decisions for you in you are ever unable to act on your own behalf.
If you do ever lose the ability to make your own decisions, the power of attorney may become the most important legal document you ever signed. Through advance preparation you can help ensure that the right decisions will be made for you by the right people at the right time and that your goals and values will always be respected.
Powers of attorney can be created to deal with personal and health care decisions, or financial matters, or both. This article will focus on financial powers of attorney. How can you ensure that this most important document will best meet your needs and goals if your agent is ever required to act?
Try to avoid relying on one-size-fits-all documents or forms that limit your agent’s authority to the default powers provided in a state law. Standard form powers of attorney may omit functions that could be essential to allow your agent to meet your particular circumstances. Your document needs to be prepared with your individual situation and goals in mind.
For those of us who are at risk of needing long term care (that’s pretty much everyone) a financial power of attorney can be the key that opens the door to effective asset protection planning. An inadequate power of attorney can close the door on protecting our assets for ourselves and our loved ones.
Unfortunately many documents, even when prepared by a lawyer, fail to address the critical issue of paying for long term care. The cost of long term care is not covered by Medicare and most private insurance policies. Asset protection planning may be required to protect what you own from the cost of care. This is a complicated area of law and your power of attorney should be prepared by a lawyer who understands it and is an expert in vital benefit programs like Medicaid and VA pension.
If protecting your home and other assets from the cost of long term care is one of your goals you should (1) find a lawyer who is an expert in this kind of planning, (2) discuss your wishes with the lawyer – don’t hesitate to bring the matter up yourself if the lawyer fails to do so, and (3) make sure your power of attorney specifies the conditions, if any, under which your agent will be authorized to transfer your assets in order to preserve them. The absence of appropriate authorizations in the document can seriously jeopardize your long term financial security and that of your spouse and family.
On the other hand, a power of attorney can be used as a tool to take financial advantage of you or to thwart your desired estate plan. Your power of attorney document should be tailored to meet your goals, given your unique circumstances, concerns, and needs, while protecting you from the potential for abuse. This is not a simple document.
Here are some items for you to think about and discuss with your lawyer.
- Consider options that can limit the potential for exploitation by your agent - e.g., limiting your agent's power to make gifts, naming co-agents who must agree, requiring reporting by your agent to a third party;
- Don’t rely on a “standard” power of attorney form you get from the internet or from a lawyer who is not an expert in long term care. Your power of attorney should be drafted by an expert lawyer who tailors the document to your particular circumstances, needs, and goals.
- Have an in-depth discussion with your lawyer about whether to give your agent the authority to make gifts on your behalf. Failure to have the appropriate gifting provisions in the document is one of the most frequently encountered problems with powers of attorney. This failure can delay your qualification for Medicaid and VA benefits, result in the need for guardianship or other court involvement, and create the potential for hard feelings and even litigation between your family members.
- Consider whether to waive some of the duties the law may place on your trusted family members. For example, you may or may not want your spouse or child burdened with the record-keeping requirements of state law. The record-keeping requirements, prohibitions against self-dealing and commingling funds, and certain other duties imposed on your agent can be waived when the power of attorney is created, but the waiver must be explicit.
- Where appropriate, consider protecting yourself from the inappropriate use of any power you give your agent to make gifts on your behalf. You can build in protections against abuse of gifting powers by:
- requiring that all gifts be approved by persons other than the agent;
- limiting the persons to whom gifts can be made (e.g., allowing gifts to be made only to your spouse);
- requiring that gifts be made in equal amounts to all your children;
- requiring that the agent report all gifts made by the agent (e.g., to another family member).
Talk to your children and any other family members who may someday be involved in your care. Prepare them for the day that you may need to rely on your designated agent. Tell them about the preparations you have made. Ask them to communicate with and support your agent and each other. Encourage them to hire expert help if they need to do so.
The laws governing powers of attorney have changed a lot in recent years. And your circumstances may also have changed. So it's smart to have your power of attorney document reviewed every few years by a lawyer who is an expert on the intricacies of this most important planning tool.
Here are some things for you to consider if you are named as someone’s financial agent.
1. Seriously consider whether or not to accept the responsibilities of agency before commencing down this perilous road. In Pennsylvania and many other states the agent is required to sign a written agreement to serve before they are legally entitled to act. This spotlights the seriousness of this undertaking.
2. Seek expert help and become educated about your responsibilities. Legal and accounting assistance may be advisable as you begin to assume your duties.
3. Assume that you will someday be called to account for all of your actions as agent. Be prepared from the moment you begin. Keep receipts, checks, and other records.