What Choices Do I Have with My Durable Power of Attorney?
Here are some of the decisions you will need to make when you prepare your durable power of attorney, whether on your own or with an attorney:
Who to appoint
Of course, you need to appoint someone you trust to have your best interests in mind. The person also needs to be organized and responsible and have the time available (or be able to make the time) to carry out the functions of paying bills, guiding investments and handling any legal matters that may arise. Generally, people appoint family members to this role, but sometimes none of their relatives are appropriate, in which case they may appoint a friend or even an accountant, attorney or clergy person. If there’s no one to appoint, despite the benefits of the power of attorney, you may need to resort to a court-appointed conservator in the event of incapacity.
How many agents to appoint
You may appoint one or more agents on your power of attorney. Having multiple agents allows more than one person to share the responsibility and permits them to divvy up tasks. If you appoint more than one, however, make sure that the document permits each to act on his or her own. Requiring them to act together provides checks and balances, but it could become very cumbersome if all of your agents have to sign every check or other document. Also, if you appoint more than one agent, make sure they get along and communicate. If not, difficult misunderstandings can arise. This is why we generally advise against naming more than two agents – too many people involved for easy communication — though it’s not unusual for parents with three children to name them all so as not to leave one out.
I have seen some attorneys prepare two separate powers of attorney naming different agents rather than name two agents on the same document. This makes me uncomfortable since anyone dealing with either agent may not know that the other document exists and it may discourage communication between the agents.
In addition to, or instead of, naming multiple attorneys-in-fact, you can name one or more alternates in case the first person or people you appoint cannot serve. For instance, you may name your spouse as your agent and your children as alternates. If you do name alternates, make sure the document is very clear about when the alternate takes over and what evidence he or she will need to present when using the power of attorney. Otherwise, a bank or other financial institution might deny access to an account if it’s not certain that the alternate has indeed taken over. For this reason, we often advise clients to appoint multiple agents, for instance a spouse and a child, rather than one and then an alternate. This avoids any question of proof when the second agent needs to step in.
“Springing” or current
The idea behind powers of attorney is that they will be used only when the person who creates it (the “principal” in legal speak) becomes incapacitated. Interestingly, traditionally powers of attorney expired when the principal became incompetent, the theory being that the attorney-in-fact stands in his shoes and can only do what he can do — if the principal is incompetent, then so is his agent. Every state has passed laws providing for “durable” powers of attorney that survive the incapacity of the principal. But when should they take effect? One would think only upon incapacity — a so-called “springing” power of attorney springing into effect upon incapacity.
Yet, we advise our clients against creating springing powers of attorney because they create a hurdle for the agent to get over to use the document. When presented with a springing power of attorney, a financial institution will require proof that the incapacity has occurred, often in the form of a letter from a doctor. Obtaining that letter will be one more task the attorney-in-fact will have to carry out, often when already overwhelmed dealing with a parent’s illness while still trying to stay employed and care for her own children. It can also mean a delay in access to funds needed to pay for care or to maintain a home. In most cases, if you trust someone enough to name her as your agent, you also trust her not to use the document until the appropriate time. And if you learn that this trust was misplaced, then you can always revoke the appointment.
A final argument for executing a current, rather than a springing, power of attorney is that it may be needed when the principal is competent, but unavailable. For instance, a financial or legal matter may come up while you are vacationing in Europe. It could be important that your attorney-in-fact be able to step in and act while you are out of the country.
Often, powers of attorney authorize the agent to make gifts on the principal’s behalf, even though strictly speaking that may not be in the principal’s best interest — isn’t it always better to have more money than less? But it may well be what you would want to do if you were competent to act on your own — to support children and grandchildren or to take steps to reduce taxes or qualify for public benefits. Often, power of attorney forms limit these gifts to the annual gift tax exclusion — currently, $15,000 per individual per year — which with the recent evisceration of federal gift and estate taxes is meaningless for all but the 0.1 percenters, since you have to give away $11.2 million (in 2018) to be subject to any gift taxes. So, there’s no tax reason to have this limitation.
On the other hand, you may want to include it simply to limit the amount of gifts your attorney-in-fact can make each year. This can make sense for financial management purposes, but can tie your attorney-in-fact’s hands in terms of planning. For instance, it may make sense to transfer your house into a trust or a life estate for long-term care planning purposes, but this would be impossible if gifts in excess of $15,000 per recipient per year were barred. So, we generally exclude such limitations in our documents. In addition, in order to avoid any charges of self-dealing, we explicitly empower attorneys-in-fact to make gifts to themselves. (Some argue that the power to make gifts to oneself can have adverse tax consequences if the attorney-in-fact were to pass away. Without going into details, I both disagree with this reasoning and feel that even if I were wrong it would affect very few people under the current tax regime.)
Similar to the power to make gifts, it can be important to authorize the attorney-in-fact to make, amend and fund trusts on your behalf. Power of attorney forms often permit the funding of preexisting trusts but not their modification or the creation of new trusts. These additional powers can be extremely important in the context of long-term care, asset protection or special needs planning for spouses, children and grandchildren of the principal.