What is a Power of Attorney for Assets?

It is estimated that only 25-30% of U.S. households have estate planning documents in place. This means that most people do not have documentation in place to address how they wish their financial affairs to be handled during their lifetime if they are not able to do so on their own.

What is Power of Attorney for Assets?

A Power of Attorney for Assets (POA-Assets) allows you to designate someone else to step into your shoes and continue to handle your financial affairs when you are no longer able to do so on your own.

Depending on how it is drafted, the POA-Assets can allow someone to assist you with your financial affairs if you just care to transfer that duty to someone else or step in and keep your financial power-of-attorney affairs in order if you are not capable of doing so on your own. However, who you designate as your Agent under the POA-Assets and the powers that you convey to that person must be carefully considered.

Considerations on Selecting Your POA-Assets Agent

When individuals are married, or in long-term relationships, they often designate their spouse, partner, or competent adult child as their Agent under the POA-Assets. If that is the case, you must also consider what types of powers you are conveying to the designated person.

Some practitioners have a template POA-Assets and fill in the names of the designated person without giving serious thought to what powers are being conveyed to the designated person. Care must be taken to understand the overall relationship between the person creating the POA-Assets and the designated individual. The powers under the POA–Assets must be tailored to the situation.

For example, many spouses or partners have joint assets. Therefore, each joint owner has the ability to access those assets now, and that access is not dependent on the existence of a Power of Attorney. However, for assets in a person’s name, or retirement accounts (IRAs, 401ks, qualified stock options, and the like), a POA-Assets can be very important in continuing to manage the individual’s assets and make sure they exercise any required withdrawals or elections.

If a POA-Assets is drafted very broadly, the person drafting and preparing the form must make sure that there are proper safeguards in place so as to eliminate, to the greatest extent possible, the potential for the abuse of the powers conveyed. Far too often, there are stories about elderly people losing their assets or their home because someone misused the powers under a POA-Assets.

Types of POA-Assets

There are a number of forms that a POA-Assets can take. One is that it is effective immediately, and once it is signed, the designated person can take the document to a bank or investment house and the like and act as if he or she was the person who owned the account. That type of document should only be used when the designated person is a spouse, family member or long-time advisor, and they understand that they are responsible for properly caring for the individual’s finances.

There is also a “springing” POA-Assets. This document is valid once it is signed, but the designated person cannot act until one or more physicians certifies in writing that the person who created the POA-Assets is no longer able to carry out and handle their own personal affairs. This allows protection and reduces the likelihood of abuse while the person is still competent, but care must still be taken to make sure that the powers are tailored to the situation.

Tips on Preventing POA Financial Abuse

Next, let’s discuss 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 power-of-attorney 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)