A financial power of attorney is a powerful legal document that gives someone the authority to make decisions if you’re unable to make them for yourself. You may create a financial power of attorney and never need it. However, you’ll gain peace of mind knowing someone you trust is authorized to handle your affairs.
This trusted decision maker—sometimes called an agent or an attorney-in-fact—can be authorized to conduct a wide range of business on your behalf. Depending on the provisions you choose for your financial power of attorney, that person may be able to buy and sell your property, make investments and manage your retirement benefits.
When you’re making choices about which provisions to include, there are three key provisions you should carefully consider. These are the power to make gifts, the power to make or change your estate plan, and the power to prosecute and defend legal actions.
The Power to Gift
A provision that authorizes your agent to make gifts on your behalf can be written in several different ways. Depending on how it’s written, the power to make gifts may permit your agent to donate your money or property to any person or organization on your behalf.
This can be an important power. Gifts can be used, for example, to spend down one’s assets in order to qualify for Medicaid or other public benefits programs that include income and asset limitations in their eligibility requirements.
If your agent can give away your property, then they can work with your family to help you meet these eligibility requirements and qualify for benefits if you become incapacitated. Your agent may also be able to continue charitable giving practices that have been important to you, like tithing to your church or supporting your favorite charity.
It’s important to be cautious about the power to gift. Sometimes it can become a tool for exploitation. Imagine a scenario where a supposedly trusted agent uses this authority to only give to themselves instead of your chosen beneficiaries. The agent could drain your estate of your hard-earned savings.
In order to protect your interests, your lawyer can draft a financial power of attorney that gives your agent the power to gift, but with limitations in place.
For example, your estate planning attorney might recommend a stipulation that the agent may not make a gift that disrupts your estate plan. Or, the provision may be written to state that your agent gives only to certain entities, like a Medicaid Asset Protection Trust. You can also name another person or organization to approve any gifts the agent makes.
The Power to Create or Change Your Estate Plan
You may also consider a provision that gives your financial power of attorney agent the power to make or change your estate plan. This can be very useful in certain situations, such as when things change and unexpected events arise.
The provision allows your agent to change your estate plan in a way that matches your intent. For example, imagine that an adult child develops a gambling addiction that puts them at risk of losing their inheritance. Your agent could modify the estate plan to put the adult child’s inheritance into a trust instead of giving it to them directly.
However, just like with the power to gift, the power to modify an estate plan carries the risk of exploitation. A supposedly trusted agent could abuse their power by making themselves or their loved ones the beneficiaries, instead of the beneficiaries you truly intended.
To protect yourself and your loved ones, talk with your lawyer about placing limits on this power. Your lawyer could draft the provision in a way that requires your agent to get approval from a specified person or organization before changing your estate.
The Power to Prosecute and Defend Legal Actions
This provision gives your agent the ability to take legal action on your behalf. Depending on how the provision is drafted, your agent may be able to file, defend, settle or appeal a legal action.
For instance, imagine that you become incapacitated due to medical malpractice. Your financial power of attorney could give your agent the ability to file a lawsuit on your behalf and hold a negligent doctor accountable.
The disadvantage of including the power to prosecute and defend legal actions is that an agent might conceivably abuse this power to harass or seek revenge on another person. It may be possible to guard against such abuses by including limiting language that excludes legal actions against family members or other persons.
Overall, it’s important to carefully consider the powers to gift, make or change an estate plan, and to prosecute and defend legal actions. Make sure you talk about the potential pros and cons with your attorney before deciding which provisions your financial power of attorney should include.
Talk With an Attorney about Your Financial Power of Attorney
If you have questions about how to safeguard yourself, your loved ones and your life savings, the best way to get answers is to talk with a well-qualified attorney. At the Law Office of Janet L. Brewer, we can help you learn about your options related to financial powers of attorney. Call our Los Altos law office today at 650-405-0711 or send us a message.
