The concept of a power of attorney sounds simple but there is a lot to know about this important part of an estate plan, says the Rushville Republican in “Financial power of attorney responsibilities.” Whether you are named as someone’s power of attorney or you are considering who to name on your behalf, it is important to understand the terminology, the role and the responsibilities.
The person who signs the POA is called the “principal” and the person to whom authority is given, is often referred to as the “attorney in fact” or the “agent.”
What powers are given to the person who becomes the agent? The POA provides what powers the agent will have, but generally the idea is the agent can do whatever the individual would do. That includes opening bank accounts, buying and selling property, managing investments, filing taxes, cashing checks and closing accounts. An agent is a considered a fiduciary of the principal, which means that he has a legal duty to act in the principal’s best interest.
The POA generally is not recorded in a courthouse. If you are signing a document for the principal that does have to be recorded with the county, like a deed to a house, then you will need to present and record the POA with the county recorder, before the document can be recorded. The laws in your state or county may be different, so check with your estate planning attorney to be certain.
The POA should remember to keep his assets and the principal’s assets separate. Money should not be intermingled in bank accounts or investment accounts. This is a very important point, since the fiduciary responsibility is a serious matter. The POA can be changed or revoked by the principal at any time, as long as she is mentally competent.
The POA ends with the death of the principal. It is meant to be used as a helpful tool, while the person is living. After the person dies, the executor takes over as the personal representative of the person’s estate.
Speak with your estate planning attorney about making the decisions as to who should be your Power of Attorney. This is a very important role and it must be someone who you can trust implicitly and who is also willing to take on the responsibilities.
Most clients have at least heard of powers of attorney (POA), and I find that many people with an existing estate plan have one. However, I find the biggest problem with powers of attorney is not the lack of one, but having one without sufficient powers or provisions to work well for the client. For that reason, you need to know powerful this document is and identify its limits. A recent article from Forbes titled “4 Power of Attorney Clauses You Need To Focus On” addresses many key provisions to consider in the power of attorney.
First, as a primer, the POA is a document that assigns decision making to another person during your life. People often do this for when they become incapacitated in life, but also for convenience, such as a spouse having authority to interact with a bank, signing at a remote real estate closing and so on.
The agent acting under the authority of your POA only controls assets in your name. Assets in a trust are not owned by you, so your agent can’t access them. The trustee (you or a successor trustee, if you are incapacitated) appointed in your trust document would have control of the trust and its assets. Also, POAs are for lifetime delegation of decision-making, so they cease to be effective when you die.
With all of that said, here are three key provisions to consider within your POA to make it effective for your circumstances.
Determine gifting parameters. Will your agent be authorized to make gifts? Depending upon your estate, you may want your agent to be able to make gifts, which is useful if you want to reduce estate taxes or if you’ll need to apply for government benefits in the future. You can also give directions as to who gets gifts and how much.
In recent years I’ve discussed the possibility of extensive gifting quite a lot so that wealthier clients can consider making large gifts for estate tax purposes. In elder law cases this is one of the most key provisions in a POA as it provides options for long term care planning.
Can the POA agent change beneficiary designations? Chances are a lot of your assets will pass to loved ones through a beneficiary designation: life insurance, investment, retirement accounts, etc. Banks tend to build products that provide for this, which is good, but does raise issues within your estate plan. Do you want your POA agent to have the ability to change these? In most states, Texas included, your POA needs to expressly provide for this power. So, it is important to consider if you will need this power to adequately control assets in the future.
Can the POA create or amend a trust? Depending upon your circumstances, you may or may not want your POA to have the ability to create or make changes to trusts. This would allow the POA to change the terms of the trust, and potentially beneficiaries depending on the terms of the POA. It is also worth considering this if you’ll need long term care in the future as these provisions assist with qualified income trusts which are helpful in Medicaid planning.
The POA is a more powerful document than people think, and that is especially true with powers crafted to fit your wishes and needs. Downloading a POA and hoping for the best can undo a lifetime of financial and estate planning. It’s best to have a POA created that is uniquely drafted for your family and your situation.
Estate planning in different states addresses key nuances between the states’ laws for people who move or spend much time in other states.
In this very mobile society, clients often move from state to state. Whether the move is due to job opportunities, to be close (or far) from family or just for a change of scenery, many people will live in multiple states in their lifetime. They often don’t realize that estate planning laws vary greatly from state to state and understanding the difference could have a significant impact on whether your estate plan is effective. It is best to get this straight shortly after moving, says The National Law Review in the recent article “Updating Your Estate Plan: What Michigan Residents Need to Know When Moving to Florida.”
It’s not just people from Michigan who move to Florida who need to have their estate plans reviewed, if they are snowbirds or making a full-time move—it’s anyone who moves to another state, from any state. However, Florida’s popularity makes it a good example to use.
Florida restricts who is permitted to serve as a Personal Representatives under a will. The personal representative, also known as an executor, must be a descendant or ancestor of the decedent, a spouse, brother, sister, aunt, uncle, nephew, niece or descendant or ancestor of any such person or a Florida resident.
Florida doesn’t recognize “no contest” clauses in trusts or wills. It also does not recognize unwitnessed testamentary documents, which are handwritten documents even if they are in your own handwriting. By way of example, Texas does and have had to utilize that option during the COVID-19 lockdowns.
Florida also has a special set of laws, known as the Homestead laws, designed to protect a decedent’s surviving spouse and children. You may have had other plans for your Florida home, but they may not be passed to the people you have designated in your non-Florida will, if they don’t follow the Sunshine State’s guidelines.
Power of Attorney laws differ from state to state, and this can create huge headaches for families. In many states, powers of attorney can be “springing,” meaning they become effective upon disability. In Florida, once a Durable Power of Attorney is signed, it is effective. Florida may accept a power of attorney from another state, but Florida law will be applied to the agent’s actions, and restrictions will be based on Florida law, not that of another state.
Estate planning in different states is very unique when it comes to estate planning documents concerning medical and financial decisions while you are living, these are also different. I routinely tell people that if you relocate, you have to change these documents. A living will names a person, known as a “Patient Advocate” in Michigan or a “Health Care Surrogate” in Florida, who is authorized to make decisions regarding end of life care, including providing, withholding, or withdrawing life-sustaining treatment. In Michigan, you need two doctors to certify a patient’s incapacity for non-life-or-death decisions. In Florida, only one doctor is needed. Even simpler, these documents will not be reviewed by attorneys. They will be reviewed by medical professionals rendering care to you. So, it is best to give them the format they anticipate so there is not delay in providing care to you.
On a broader prospective, estate administrations are very different in different estates, and that leads to different goals in estate planning. I’m admitted in Pennsylvania, New York and Texas. In Pennsylvania, we frequently used wills as the primary estate plan vehicle because the probate process is easy to initiate, and all of the work of an estate administration exists whether or not you are using a trust. In New York, we almost exclusively used trusts. Probate was far more involved and expensive, which made living trusts extremely helpful to clients. In Texas, we definitely draft more trusts as they are still beneficial, but it isn’t nearly as critical as it is in New York. To make it one step worse, Pennsylvania has inheritance taxes, New York has estate taxes, and Texas has neither. Those are three very different estate planning realities.
As a final point, if you expect to relocate in the future and are considering estate planning, I strongly recommend a living trusts. Trusts tend to be portable as they go outside of the court probate process, which is where many of the state nuances lie. This is also helpful because clients who move often have real estate in multiple states. Real property in multiple states potential means multiple probates, which people don’t expect.
So, if you are planning on a move or even if you just spend substantial time outside of your home state, meet with your estate planning attorney to understand how any and all of your estate planning documents will work—or not—when you are in another state.
