A power of attorney may seem like a simple document, but there are several important decisions that need to be made when creating one. From whom to appoint to what powers to grant, care and consideration should be put into each choice.
A power of attorney is one of the most important estate planning documents you can have. It allows a person you point – your “attorney-in-fact” or agent – to act in your place for financial or other purposes when and if you ever become incapacitated or if you can’t act on your own behalf. It can permit the agent to pay your bills, make investment decisions, take planning steps, and take care of your family when you can’t do so yourself.
Two nationally-known estate planners, Jonathan Blattmachr and Martin Shenkman, have written a whole ebook just on powers of attorney: Powers of Attorney: The Essential Guide to Protecting Your Family’s Wealth.
Here are some of the decisions you will need to make on your power of attorney:
- Whom to appoint. Of course, you need to appoint someone you trust to have your best interest in mind. The person also needs to be organized and responsible and have the time available (or be able to make the time available) to carry out the functions of paying bills, guiding investments and handling any legal matters that may arise. Generally, people appoint family members to this role, but sometimes none of their relatives are appropriate, in which case they may appoint a friend, an accountant, or an attorney. If there’s no one to appoint, despite the benefits of the power of attorney, you may need to resort to a court-appointed guardianship in the event of incapacity.
- How may agents to appoint. You may appoint one or more agents on your power of attorney. Having multiple agents allows more than one person to share the responsibility and permits them to divvy up tasks. If you appoint more than one, make sue that the documents permits each agent to act on his or her own. Requiring them to act together provides checks and balances, but it could become very cumbersome if all of your agents have to sign every check or other document. Also, if you appoint more than one agent, make sure they get along and communicate. If not, misunderstandings can arise. It is generally better not to make more than two agents.
- Alternates. In addition or instead of naming multiple attorneys-in-fact, you can name one or more alternates in case the first person or people you appoint cannot serve. For instance, you may name your spouse as you agent and your child as an alternate. If you do name alternates, make sure the document is very clear about when the alternate takes over and what evidence he or she will need to present when using the power of attorney. Otherwise, a bank or other financial institution might deny access to an account if it’s not certain that the alternate has indeed taken over. For this reason, it may be better to appoint multiple agents rather than one and then an alternate. This avoids any question of proof when the second agent steps in.
- Gifting. Powers of attorney usually go on for several pages listing the various powers the attorney-in-fact may carry out. This is because financial institutions and tax authorities often look for and demand specific authorizations for the tasks the agent is seeking to perform. Moreover, under Florida law, the power must be specific. One of the most important powers is the power to gift. You may want to support children and grandchildren or to take steps to reduce taxes or qualify for public benefits, including Medicaid for long-term nursing care.
- Trust powers. Similar to the power to make gifts, it can be important to authorize the attorney-in-fact to make, amend, and fund trusts on behalf of the principal. These powers can be extremely important in the context of long-term planning, asset protection planning, or special needs planning for spouses, children, and grandchildren.
- Copies and Storage. Once the agents and working of the power of attorney have been determined, now may originals should you have and where should they go? Most powers of attorney include language saying that a copy should be treated like an original, but this is not always honored by third parties. In addition, an original may be inaccessible for some periods of time. For instance, in transactions involving real estate, an original power of attorney must be recorded with the deed. The power of attorney will be returned, but perhaps not for several months. One option is to execute three original powers of attorney – the attorney can keep one and you can take two. You have the option to keep originals yourself or give them to your agents. Usually people keep the originals and tell their agents where the documents are located in case they are needed.
Executing a power of attorney is not as simple as it first seems. It is important to have a qualified elder law attorney help you.