WHAT POWERS TO GIVE YOUR FINANCIAL POA
July 12, 2022
In a financial power of attorney, you choose a trusted decision maker (your agent) to act on your behalf if you become incapacitated. This could be from a mental or physical illness. Depending on the provisions you choose to include, your agent may have the following powers:
To buy and sell property in your name,
To invest in your name,
To manage your retirement benefits,
To manage your bank accounts,
To manage your bills,
There are other powers that people often don't consider. When you are selecting powers to give your agent, you should consider the following three in particular:
The power to gift,
The power to make or change your estate plan, and
The power to prosecute and defend legal actions.
THE POWER TO GIFT
Depending on how it is written, the power to gift authorizes your agent to give your money and property to any person or organization on your behalf. On one hand, this power could be quite beneficial. It enables your family to apply for your Medicaid and other necessary public benefits after you become incapacitated. It also gives your agent the ability to continue your charitable giving practices such as tithing to your church or donating to scholarship funds. In addition, if new needs arise, it allows your agent the flexibility to financially help family members the way you would have.
The power to gift also has drawbacks. You must exercise caution when including the power to gift, because it may invite financial exploitation by the agent. An agent could be tempted to make large gifts to themselves instead of your chosen beneficiaries. Abusing the power to gift can disrupt an entire estate plan. Therefore, you may choose to limit the power to gift. In your financial power of attorney document, you can give specific instructions. You can specify that your agent may not make gifts that disrupt your estate plan’s essential provisions or that they can only make gifts to a trust. To create a check on the agent, consider naming an independent third party to approve any gifts the agent makes.
THE POWER TO MAKE OR CHANGE YOUR ESTATE PLAN
This power is sensitive because it also invites potential exploitation. Your agent could create or alter your estate plan so that they receive all your property, or more than the share you want them to receive. However, such a power can allow a trusted agent to be able to alter an estate plan in a way you would have wanted. For example, if a child develops an addiction after Mom and Dad become incapacitated, this power would allow the agent to alter the estate plan to include provisions that would let the child receive their inheritance with restrictions.
An experienced estate planning attorney can include language in your financial POA document that specifies the powers your agent has. If they want to make changes to your estate plan, perhaps require approval from a disinterested third party.
THE POWER TO PROSECUTE AND DEFEND LEGAL ACTIONS
This power gives your agent the ability to start, settle, defend, intervene in, and appeal legal action. The following example illustrates this power’s benefit:
Example: Helen goes to her estate planning lawyer’s office and signs a power of attorney that includes the power to prosecute and defend legal actions. A short time later, Helen goes into a nursing home where she has a fall that causes a stroke. The nursing home staff fails to check on her, which results in brain damage and leaves her paralyzed. Helen’s son, who is her agent under her power of attorney, seeks out a medical malpractice lawyer for help. Because Helen’s power of attorney document specifically allows her agent to initiate legal action, the medical malpractice attorney can immediately file a lawsuit against the nursing home. Without that provision, Helen’s agent would have had to first go to court and seek a guardianship. Granting the power to prosecute avoided that delay and additional expense.
The downside to including the power to prosecute and defend legal actions is that an agent could abuse their power. Perhaps, they want to file a lawsuit (on your behalf) against a sibling they have a personal grudge against. It may be possible to guard against such abuses by including limiting language that excludes legal actions against family members.
Overall, because the powers to gift, to make or change an estate plan, and to prosecute and defend legal actions are such powerful provisions, you should carefully discuss their potential pros and cons with your attorney.
If you have questions or would like to discuss other ways we can safeguard your wishes, call us at 614-389-9711.
There are many more documents that make up a sound estate plan. Read about them in our Consumer's Guide to Estate Planning in Ohio.