One of my favorite topics to talk about when I address a group is: “Why Your Will May Not Be Your Most Important Estate Planning Tool.” The title is, of course, intended to catch the reader’s eye and call attention to powers of attorney. There is no intention to demean the importance of a well thought and well drafted will. Rather the objective is to show why the power of attorney should neither be overlooked or dealt with as an afterthought.
If a person dies without a will, there is a statutory order of distribution of his/her estate. In many cases, the beneficiaries are the same as they would be if a will were executed. In such cases, there are some additional expenses and inconveniences and perhaps no big deal. Estates are usually wrapped up in a relatively short period of time, whether there is a will or not - - a few months for simple estates, up to two years where there are more complicated issues. Where the decedent’s intention is different from the statutory scheme, the absence of a will can be devastating. That is a subject for a different article.
A power of attorney, on the other hand, can remain in effect for years, if not decades. A power present power of attorney begins with the date of execution and, if properly drafted, remains in effect until the principal dies. Downloading a power of attorney from the internet, or purchasing one from a stationery store may work, but those documents do not come with instructions and are not the subject of questions by an attorney who knows what to ask and what to recommend based on the dynamics of the client sitting across his/her desk.
Here are some of the situations that need individualized attention:
•Who is the right person to be designated as agent?
•Should co-Agents be named?
•Does the power of attorney make a specific reference to the New Jersey banking statute? If this is not done properly, banks can refuse to honor it.
•Should the power of attorney take effect immediately or at a future time?
•Should the power of attorney permit gift-giving? [Without specific authority, the agent has no power to make gifts]
•If the agent has the power to make gifts, should there be any limitations?
•If there are limitations on gift-giving, should there be an exception for Medicaid planning to avoid the imposition of a penalty on the principal if he/she should run out of money while in a nursing home before the end of the 5-year lookback period]
•Should the agent have the right to establish a trust, and if so, should the trust be either revocable or irrevocable, or both, or one but not the other?
•Should the agent have the right to change beneficiaries of life insurance policies or cash in the policies?
•Should the agent have the right to change beneficiaries of retirement accounts?
•Should the agent have access to on-line financial accounts?
•Should the agent have access to passwords and social media accounts?
•Should the agent be the same person as the representative designated in the principal’s medical power of attorney or advance directive (living will).
•Is the agent entitled to compensation for services rendered? If not stated, he/she will have to make application to the court for fees, which can be expensive.
•Does the agent have the right to appoint someone to act in case of the agent’s temporary absence?
•Is there a chance, however, slight, that the principal may move to another state? If so, is the power of attorney executed with the proper formality so that it will be recognized in another state.
It is not enough to know the questions - - although knowing what to ask is important. The answer to many of the above questions depends on specific family dynamics. What is right for one family may be wrong for another. In order to answer the questions correctly, you have to know the pros and cons of each choice.
With a poorly drafted power of attorney, the problem can be corrected by having the principal execute a new document. However, the family may be stuck if the principal is incapacitated and no longer able to sign a new power of attorney. Without a power of attorney, or with a poorly drafted one, the family may have to make application for guardianship, an expensive proceeding that imposes limitations on what can and cannot be done, as well as imposing significant reporting and accounting requirements.
The best advice is always to seek competent counsel when preparing a power of attorney.