A financial power of attorney can be a powerful tool in your estate planning tool belt. However, if you don’t take careful consideration when creating this document, you could face serious consequences. Beck & Lenox Estate Planning and Elder Law recommends Kiplinger’s recent article entitled “5 Mistakes to Avoid When Writing a Financial Power of Attorney” .
- Not Designating an Alternative Agent. The most protective plans consider contingencies — including if your primary agent is unable or unwilling to serve. Naming an alternative agent lets you say who will manage your affairs if your first choice dies, becomes incapacitated, resigns, or simply refuses to act. It can also help avoid having the court appoint a new agent, someone you wouldn’t have chosen.
- Creating a “Springing” Agency. When an agency is conditioned on the incapacity of the principal, it’s sometimes called a “springing” agency,” because it “springs” into existence upon a triggering event. However, not all states recognize springing agencies. Missouri does, however, Beck & Lenox will almost always recommend the “durable” version which allows you to act immediately, if needed.
- Overbroad Gifting Powers. A powerful term that can be granted to an agent under a power of attorney is the authority to give away the principal’s property. Granting your agent this power gives them powerful control over your estate. Before granting this power, you should carefully consider the potential risks involved — including financial abuse or fraud. You can also limit your agent’s gift-making authority and specify to whom your agent is authorized to make gifts, including if the agent should be permitted to make a gift to themselves. You should also specify the total value of gifts your agent will be authorized to make in a given year.
- Not Telling Current Agents of a Change. Most powers of attorney include an express statement that all old powers of attorney are revoked or canceled whenever the document is updated or replaced. Any agents acting under a previously authorized power that’s now void should be told (in writing) to avoid any confusion or potential issues.
- Failing to Plan for Real Estate Powers. One of the most common powers principals grant their agents is the power to manage their real estate. This may include renting or selling real estate, paying for repairs or renovations or hiring a real estate agent to help carry out transactions. If you want to grant your agent this power, you may be required to file your POA with your local land records office.
Beck & Lenox believes that the power of attorneys for finances and for healthcare are the most important legal documents we draft for a client. If you do not have yours in place and you live in Missouri or the Metro East in Illinois, contact us for help today.
Reference: Kiplinger (Dec. 27, 2022) “5 Mistakes to Avoid When Writing a Financial Power of Attorney”