Is Your Financial Power of Attorney Adequate for Your Needs?

If you already have a general power of attorney, you have begun to address how your affairs will be managed in the event you are incapacitated. Unfortunately many powers of attorney we review are gravely inadequate to handle the vast array of planning needs that may arise. Every week we review powers of attorney that do not specifically address the myriad of situations that may arise. If you want to provide your attorney-in-fact (agent) with the greatest amount of flexibility to manage your affairs, a standard boilerplate power of attorney may be insufficient. To provide maximum authority to your attorney-in-fact your power of attorney should be much more detailed than the standard one to three page boilerplate powers of attorney.

First, does your power of attorney contain the specific powers Louisiana requires to be listed in the power of attorney? Express authority in the document conferring power of attorney must be given for the following actions:

  1. To make donations either outright or to a new or existing trust or custodial arrangement;
  2. To accept or renounce a succession;
  3. To contract a loan, acknowledge or make remission of a debt or become a surety;
  4. To draw or endorse promissory notes and negotiable instruments;
  5. To enter into a compromise or refer a matter to arbitration;

Consider that gifting (donating) powers can also be helpful if Medicaid planning or estate planning must be done after an individual becomes incapacitated. Although the power to gift has many benefits, granting the power to gift to the attorney-in-fact should not be taken lightly. The principal must have complete trust that the attorney-in-fact will act in the principal’s best interest. You may also want to limit to whom donations can be made. For example, you may provide that donations may only be made to your children.

If your power of attorney is a one to three page document, it may not contain an adequate explanation of your agent’s powers. For example your power of attorney may provide that your agent may handle financial or banking transactions. Financial institutions may not allow your agent to open or close accounts if those powers are not specifically listed. Likewise, your power of attorney may not specifically provide that your agent may create a trust on your behalf. If a trust needs to be created for Medicaid, estate or for special needs planning purposes, your agent should be specifically empowered to create a trust. Although your agent may be empowered to “transact all of your affairs, business, concerns, and matters of whatever nature, or kind, without any exception or reservation” or other all inclusive language, financial institutions, governmental agencies and other third parties may not recognize your agent’s authority without more specific powers listed.

Another consideration is providing your agent with extraordinary powers. When drafting a power of attorney, you must consider the extent of the powers to confer upon the attorney-in-fact. For example, will the attorney-in-fact have the power to change beneficiaries of insurance policies or retirement plans, to take distributions from retirement plans or to make investment decisions for retirement plans or other investments? If the children of a prior marriage are the beneficiaries of a retirement plan or annuity, will the current spouse as attorney-in-fact (who is not the parent of the beneficiaries) have the power to change these beneficiary designations? If the attorney-in-fact is granted the power to change beneficiaries, one option is to limit the choices of individuals who may be named beneficiary. Another option is to specifically prohibit changing beneficiary designations. In addition, if the attorney-in-fact has the power to donate assets, the principal may consider limiting the donees to which property may be donated. If your estate plan calls for gifting assets out of your estate, consider including specific language in the power of attorney document that grants to the attorney-in-fact the specific power to donate assets from your estate. Without the specific power to donate assets from your estate, any donation will be treated as a revocable donation, and the asset will be included in your gross estate for estate tax purposes.

Finally consider executing an in-house power of attorney from financial institutions. Even if you have your own power of attorney, check with your financial institution to determine if they have an internal power of attorney. It is often a good idea to also execute a power of attorney provided by your financial institution to ensure your agent will have the authority to act.

Contact lawyer John E. Sirois in Houma at 985-580-2520 if you have questions about powers of attorney or other estate and disability planning needs. Click on the Estate Planning Checklist to begin planning your estate. You may also e-mail him for a consultation.