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Decisions to Make for Your Power of Attorney
Aug 17, 2022
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 (principal) to appoint an “attorney-in-fact” or agent to act in his/her place for financial or other purposes when and if the person ever become incapacitated or can’t act on their 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.
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 interests 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 or even an accountant, attorney or clergy person. If there’s no one to appoint, despite the benefits of the power of attorney, you may need to resort to a court-appointed guardian or conservator in the event of incapacity.
- How many 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 sure that the document 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. And most financial institutions will not deal with joint agents. It is not recommended to name more than two agents. You should also name successor agents.
- “Durable.” In order for a power of attorney to remain effective if and when you become incapacitated, the power of attorney must be durable. In other words, the authority under the durable power of attorney survives the incapacity of the principal.
- 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 authorization for the tasks the agent is seeking to perform. 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.
- 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 care planning, asset protection planning or special needs planning for spouses, children, and grandchildren.
- Copies and storage. Once the agents and wording of the power of attorney have been determined, how many originals should you have and where should they go? Your attorney generally will discuss this matter with you, and depending on your circumstances make recommendations as to copies and storage. It is generally recommended to execute multiple originals. You have the option to keep the originals yourself or give them to your agents or have your attorney keep them. Oftentimes, people keep the originals, or have their attorneys keep the originals, and tell their agents where the documents are located in case they are needed.
One other important consideration is to see if any of the financial institutions with which you have accounts have their own power of attorney forms. If so, make sure you execute their forms as well as a general durable power of attorney because banks and investment houses have been known to reject powers of attorney that are not their own for spurious reasons.
For more information, please call Kommer Bave & Ciccone at (914) 633-7400.