In a financial power of attorney, you designate a trusted decision maker (called an attorney-in-fact or agent) to act on your behalf if you become disabled or unable to manage your financial affairs. You may choose to give your agent, among other things, the power to buy and sell property, the power to invest, and powers regarding your retirement benefits. When you are selecting powers to give your agent, you should carefully consider the following three powers in particular: (1) the power to gift, (2) the power to make or change your estate plan, and (3) 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 make gifts of your money and assets to any person or organization on your behalf. This power could be quite beneficial and can enable your family to accomplish necessary Medicaid and other public benefits eligibility planning 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 your favorite charities or scholarship funds. Also, if a need arises after you can no longer manage your affairs, it allows your agent flexibility to financially help family members the way you would have.
On the other hand, you must be careful when including the power to gift, because of the opportunity it gives your agent. An agent could be tempted to make substantial gifts to themselves or their loved ones contrary to your plan to benefit your chosen beneficiaries. Abusing the power to gift can disrupt an entire estate plan. Therefore, you may consider limiting the power to gift by specifying that your agent may not make gifts that disrupt your estate plan’s essential provisions or that your agent make gifts only to a trust that preserves your estate plan’s main provisions, such as a Medicaid Asset Protection Trust. To create a check on the agent, you should 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 also sensitive because it gives opportunity for an agent to exploit your plans in a way that the agent receives all your property, or more than the share you want them to receive. On the other hand, such a power can allow a trusted agent to be able to alter an estate plan in a way, and under circumstances, that you would have wanted but are now unable to do yourself. For example, your agent could be given authority to prevent a child from receiving your assets when they are suffering from a drug addiction or facing a messy divorce or bankruptcy.
So, when including such a power, you may want to consider including limiting language requiring a disinterested third party to approve any change to your estate plan that would benefit the agent.
The Power to Prosecute and Defend Legal Actions
This power gives your agent the ability to start, settle, defend, intervene in, and appeal a legal action. Consider the following example.
Example: Betty 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, Betty goes into a nursing home, falls, and has a resulting stroke. The nursing home staff fails to check on her for more than eighteen hours, resulting in brain damage and leaving Betty paralyzed. Betty’s son, who is her agent under her power of attorney, seeks out a medical malpractice lawyer who advises him that Betty has a claim against the nursing home. Because Betty’s power of attorney specifically allows her agent to initiate legal action, the medical malpractice attorney can immediately file a lawsuit against the nursing home. Without that provision, Betty’s agent would have had to first go to court and seek a guardianship. The court would name a guardian who would then have the power to pursue an action against the nursing home. If the Power of Attorney gave the agent power to prosecute, the probate court action, with its inherent delay and expense, could have been avoided.
On the other hand, including the power to prosecute and defend legal actions gives an agent the ability to abuse the power in order to harass or seek revenge on another person, such as a sibling against whom they have a personal grudge. 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 with your attorney the potential pros and cons before deciding to include or exclude them from your financial power of attorney. If you have questions or would like to discuss other ways we can safeguard yourself, your loved ones, and your life savings when you can no longer manage your affairs, call us to schedule an appointment.
