What Should I Know about Powers of Attorney?
Forbes’ recent article entitled “5 Power Of Attorney Clauses You Need to Focus On” explains that there are two types of powers of attorney. A durable power of attorney is valid when you sign it and stays valid, if you later become incapacitated. A springing power of attorney “springs” into effect, if you become incapacitated. No matter the type of power of attorney, here are some things to consider before signing.
- Designating multiple agents. Selecting the person you want as your attorney-in-fact or agent can be a difficult decision because he or she will have control of your financial assets. You can name more than one person as your agent, but if you name two, specify if they’ll be required to act together or if either one can act independently.
- Defining gifting parameters. Make certain that your agent will be authorized to make gifts, as this may be important if you want to reduce estate taxes or if you’ll need to apply for government benefits in the future.
- Changing beneficiary designations. See if the document lets your agent change beneficiary designations. You should have already named beneficiaries of important assets, like life insurance and retirement accounts, but verify whether you want your agent to be able to change those designations. Most people don’t want their agent to be able to change these designations.
- Amending a trust. If you’ve created a revocable trust during your lifetime, you may want to give your agent the ability to change important provisions of the trust, like the beneficiaries or the amounts that they receive. However, this could ruin your estate planning goals and disinherit family that you intended to provide for. Most people don’t want to give their agent the ability to change a trust.
- Designating a guardian. The power of attorney often names a guardian, in case one is required. The guardian would be appointed by a court and is often the same person as the agent. If you trust someone enough to be your attorney-in-fact, you’ll probably also trust them as your guardian.
The power of attorney contains powerful authorizations, so make sure you read the document carefully before you sign it. It may be wise 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’s ever needed.
Check out these other articles addressing Powers of Attorney: Do You Need a POA If You Have a Joint Account? and Appointed Power of Attorney? and Are Your ‘Affairs’ Really in Order? and Choose Wisely and Protect Yourself When Naming a Power of Attorney
Reference: Forbes (July 19, 2021) “5 Power of Attorney Clauses You Need to Focus On”