Is a Generic Financial Power of Attorney OK?

4 Reasons to Consider a Custom Financial Power of Attorney

We all want to save time and money when possible. So, when clients ask me if pulling a generic power of attorney form off the web, like the standard Wisconsin power of attorney for finances, will work, I understand the motivation to put a crucial document in place quickly and economically. A generic form is valid and will give your agent certain powers to manage your finances. However, they do have limitations to be aware of.

Often a generic form will lack provisions that may be necessary for making complex financial decisions to ensure your plan is carried out. We often face navigating more complex financial situations when planning for Medicaid. You should consider the following four factors before using a generic form.

• No Ability To Create Trusts. A generic power of attorney for finances will allow your agent to deal with trusts you have already created, but it will not authorize your agent to create new trusts. A trust may need to be created as part of your estate plan, especially if you desire to protect assets. Medicaid planning routinely uses trusts to protect your assets. A custom power of attorney for finances can allow your agent to create irrevocable trusts, special needs trusts, or pooled-trust accounts (e.g., Wispact) for you.

This trust-creation ability for your agent can be vital, especially when dealing with special needs planning. If the power of attorney document doesn’t allow your agent to create certain trusts, a guardian must be appointed to carry out that task.

• No Ability To Change Beneficiaries. Changing beneficiaries on life insurance, annuities, or retirement benefits is sometimes necessary to adjust your plan to life’s changing circumstances, especially when undertaking Medicaid planning. A generic power of attorney for finances will allow your agent to do many things related to those types of assets, but it will not allow your agent to change beneficiaries. Your beneficiaries may need to be changed to avoid leaving assets to someone who cannot receive assets due to being embroiled in a divorce or going through bankruptcy. Special needs planning also makes flexibility with beneficiary designations vital. In addition, some assets must have the State of Wisconsin listed as a beneficiary in order to qualify for Medicaid. Not having the ability to make that change may prohibit receiving benefits you may need. A custom power of attorney would authorize your agent to make those necessary changes.
• Limited Gifting. When conducting Medicaid planning, it is often necessary to make gifts to achieve certain goals. A generic power of attorney will limit your agent’s ability to make gifts by requiring gifts to be less than the annual gift tax exclusion (currently $17,000). Although this limitation helps protect you from your agent making excessive gifts, it may limit your ability to engage in Medicaid planning.

 When engaging in Medicaid planning, it is often desirable to make gifts in excess of the $17,000 exclusion. A custom power of attorney for finances can provide both flexibility and protection. It can limit your agent’s ability to make gifts under normal circumstances to a maximum amount and provide an exception to allow your agent to make larger gifts under certain circumstances, such as Medicaid planning.

• No Ability To Classify Property. For a married couple in Wisconsin, the ability to classify property as individual or marital is a key component in Medicaid planning. A generic financial power of attorney form does not provide your agent with the ability to enter into any type of marital property agreement. To properly plan for Medicaid, a married couple should have the ability to classify or re-classify property. Even some custom powers of attorney limit the types of marital property agreements that can be entered into, so you should have an experienced elder law attorney review or draft the power of attorney to ensure the necessary powers are given to your agent.

Sometimes life can be more complicated than we prefer. While there is a time to simplify things and to be thrifty, when dealing with the uncertainties of life and management of your assets, it is preferable to pay for professional services to make sure your agent can do everything necessary to make sure your plan remains in order and you receive the care you need. Before you download a generic form and call it a day, schedule a consultation with us to discuss your own custom financial power of attorney.