Protecting your assets
5 Power of Attorney Clauses You Need to Focus On
Many people have signed at least one power of attorney in their life. A power of attorney, which names a trusted family member, friend or advisor as your “attorney-in-fact” to control your assets, is meant to be used if you are incapacitated. For instance, if you have been in a car accident or are in a coma (the coma scenario happens more than you would think), the person with your power of attorney would step in and manage your affairs.
It is important to note that whoever has power of attorney only controls the assets in your name alone. It does not apply to assets held in trust. The successor trustee named in the trust would control those assets.
There are two types of powers of attorney. A durable power of attorney is valid when you sign it and remains valid if you later become incapacitated. A springing power of attorney springs into effect if you become incapacitated. Most attorneys will advise you to sign a durable power of attorney. This is because a springing power of attorney is much harder to use.
Whatever type of power of attorney you have, here are five issues to consider before signing.
Naming multiple agents. Choosing who to name as your attorney-in-fact or agent can be a difficult decision. This person will have control of your financial assets. You can name more than one person as your agent. If you name two people, you want to specify whether they will be required to act together or if either one can act independently.
Defining gifting parameters. Check to see whether your agent will be authorized to make gifts. Gifting may be important if you want to reduce estate taxes or if you will need to apply for government benefits in the future. However, you can specify in the document who can receive gifts. For instance, you can state that just your spouse and descendants can receive gifts. You can also limit the amount of the gifts. Limiting gifts to the annual exclusion amount (currently $15,000) is common. Also check to see if your agent can gift to himself.
Changing beneficiary designations. Check if the document allows your agent to change beneficiary designations. You should have already named beneficiaries of important assets like life insurance and retirement accounts. Verify whether you want your agent to be able to change those designations. In most instances, most people do not want their agent to be able to change these designations.
Amending a trust. If you have created a revocable trust during your lifetime, you may or may not want to give your agent the ability to change the trust. Giving the agent the ability to change the trust would allow him to change important provisions of the trust such as the beneficiaries or the amounts that they receive. This could thwart your estate planning goals and disinherit loved ones that you intended to provide for. Most people do not want to give their agent the ability to change a trust.
Naming a guardian. The power of attorney often names a guardian in case one is needed. The guardian would be appointed by a court. This person is often the same person as the agent. If you trust someone enough to be your attorney-in-fact, you will probably also trust them as your guardian.
The power of attorney contains powerful authorizations. Make sure you read the document carefully before you sign it. Also, it is a good idea to sign a new power of attorney every few years. Otherwise, the power of attorney might become “stale” and your named agent may have trouble using it if it is ever needed.
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