This blog post picks up on an issue raised in the prior “What is a Power of Attorney for Assets” post—preventing financial abuse.  A Power of Attorney for Assets (POA-Assets) allows one person (the “Principal”) to grant another person (the “Agent”) authority to take permitted actions (“Powers”) under specified circumstances.

First and foremost, the Principal must select a trustworthy Agent.  The Principal should also select a successor Agent to serve in the event the initially appointed Agent is unwilling or unable to serve.

Second, the Principal should decide what Powers are being granted to the Agent.  A Power of Attorney can be as broad or as limited as the Principal sees fit, except for a few restrictions imposed by law.  A broad POA-Assets grants the Agent Power to handle most of the Principal’s financial affairs.  This does not prevent the Principal from also handling his or her financial affairs, but it allows the Agent to simultaneously handle the Principal’s affairs.  A Power of Attorney can be as limited as providing authority to engage in a specific real estate transaction, or authority to use a checking account into which a Social Security or pension check is deposited to pay the Principal’s basic living expenses.  Or, as discussed in the prior POA-Assets post, it can be limited in duration by “springing” into effect upon a triggering event, such as a treating physician certifying the Principal is incompetent to handle his or her own affairs.

Third, a Principal might consider limiting the scope of the Powers granted to an Agent.  One power in which being protective and defensive is often a significant concern is that of gifting.  Gifting may be an important part of the Principal’s lifestyle and an integrated part of the estate plan.  However, the Principal may be concerned an Agent or a successor Agent may try to take advantage by gifting to himself or herself.  Perhaps this can be resolved by the Principal permitting a highly trusted named Agent to gift broadly, and restricting the gifting authority of a successor Agent.

The Principal may also wish to clearly define what Powers are not permitted.  For example, a Power of Attorney may state the Agent cannot engage in specified actions, such as loaning money, changing the Principal’s retirement account beneficiary designations, or selling a vacation home.   In considering such provisions, the Principal must keep in mind that there are times when the Principal would benefit from permitting the Agent broad Powers to enhance or preserve the estate.  For example, in order to maximize the sale price, it may be necessary for an Agent to obtain a line of credit to repair real estate in order to sell at a more favorable price.  And, broad powers could be exercised to honor a Principal’s intention to leave money to his or her children upon the Principal’s death.  It may be appropriate for an Agent to engage in various transactions to establish the Principal’s eligibility for Medicaid health care benefits.

Fourth, a Principal may discourage untrustworthy behavior in an Agent by the POA-Assets requiring the Agent to account annually or more often to a friend or trusted advisor.

Fifth, the Principal may appoint co-Agents and only allow them to exercise the granted Powers together by agreement.  This may be cumbersome, but it may be an important check on behavior.

Sixth, if necessary, the POA-Assets can be revoked or amended, and a court accounting demanded.

The Principal’s goals of self-protection, estate planning and the need for sensible and flexible financial management must be examined in light of his or her current and anticipated situation.  Powers of Attorney and other estate planning devices can be customized and modified to meet personal needs and challenges as they arise.

If you need a Power of Attorney for Assets or have a question about it, please contact a member of our Estate Planning Team. (April 23, 2019)