A Power of Attorney is among the most commonly used of all estate planning documents. As such, there is a very good chance that you will execute, and/or be named as an Agent in, a Power of Attorney at some point. If so, it is imperative that you understand how the Agent’s ability to make gifts is treated in the document. To help you better understand, we will discuss the ability to make gifts in a Power of Attorney.
What Is a Power of Attorney?
A power of attorney, or POA, is a legal document that allows the creator (referred to as the “Principal”) to grant another person (the “Agent”) the legal authority to act on his/her behalf. The type and extent of the legal authority granted to an Agent depends on the type of POA executed.
General vs. Limited Power of Attorney
A general POA grants an Agent almost unlimited power to act on behalf of the Principal. This means that an Agent may be able to do things such as withdraw funds from a Principal’s financial accounts, sell property and assets owned by the Principal, and even enter into contracts in the name of the Principal while the POA is in effect.
A limited POA only grants an Agent the limited, and specific, authority enumerated in the POA. For example, you might grant an Agent the specific power of attorney to act on your behalf during an upcoming closing for a home you purchased. Parents of minor children frequently make use of a limited POA to grant a caregiver the authority to consent to medical care for a child, should it be needed, during the limited period of time that the parents are not going to be unavailable
What Does It Mean to Make a Power of Attorney Durable?
Historically, a power of attorney automatically terminated upon the death or incapacity of the Principal. The problem with that was that for many people, the entire point of executing a POA was that they wanted a loved one to have the authority to act for them in the event of their incapacity. If, however, the POA automatically terminates upon the incapacity of the Principal, executing the POA will not fulfill that purpose. With that in mind, the concept of a durable power of attorney began to evolve. A “durable” POA is simply a power of attorney that survives the incapacity of the Principal. Both a general and a limited POA can be made durable.
Gifts and Your Power of Attorney
There is no question that a POA can be a powerful estate planning tool when properly drafted and when used as intended. When a POA is not properly drafted and/or not used as intended, however, it can create a nightmare. Executing a durable general POA, for example, that allows the Agent to make gifts should only be done after consulting with an experienced attorney, so you understand the authority granted to your Agent.
Failing to address gifts is one of the most common reasons for a POA to be litigated. Generic POA forms are frequently silent on the issue of gifts, which is typically interpreted as not granting the Agent the authority to make gifts. All too often, however, the Principal intended the Agent to be able to make gifts – particularly if the Principal becomes incapacitated. For example, you might execute a durable general POA naming your spouse or adult child as your Agent with the intent to give your Agent the ability to transfer your property into his/her name if you become incapacitated. Without an express, and well written, gift clause in your POA though, any gift your Agent makes could be subject to suspicion and eventually litigation.
Please download our FREE estate planning checklist. If you have additional questions or concerns about creating or using a Power of Attorney, us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.
- Estate Planning and Charitable Giving — Key Points - March 29, 2020
- Over-Funding Your Retirement Plan: A Potential Estate Planning Problem - March 27, 2020
- Best Places to Retire: State Taxation - March 25, 2020