A power of attorney is an important estate planning document and can be an essential tool in ensuring that an individual’s wishes are carried out should he or she become mentally or physically incapacitated. A power of attorney is a standardized legal document that allows an individual, known as the principal, to designate a representative, known as the agent, to make financial decisions on their behalf if they become incapacitated or unable to act on their own behalf. A power of attorney specifies how much power an agent will have and can be created with limited powers, broad powers and can become effective upon the occurring of an event. Many individuals assume that regardless of whether it is limited or broad that the document will contain the same language and provisions. However, more often than not, this presumption is incorrect and may lead to issues in the future.
A durable power of attorney gives an agent essentially the same powers as the principal. The term “durable” means that the power of attorney will still be effective even if the individual becomes incapacitated or subsequently disabled. A power of attorney goes into effect as soon as it is signed and notarized. The principal may specify that the agent cannot use the power of attorney unless he or she becomes incapacitated or unable to act for themselves. However, if this stipulation is not specified, the power of attorney may be able to utilize his or her power prior to those circumstances.
Some individuals seek to establish a power of attorney that is effective upon a triggering event, such as incapacitation. However, there are several unforeseen issues that may arise if this type of power of attorney is created. One issue that may arise is that the agent may need to show an affidavit that states that the triggering event has occurred prior to them utilizing the power of attorney. Another issue that may arise is that regardless of the law stating that the agent can make financial on behalf of the principal with the affidavit, banks and other institutions may be hesitant to grant the agent his or her power under this type of power of attorney.
Many individuals believe that by establishing a power of attorney his or her agent has broad gifting power. Usually, when someone establishes a statutory power of attorney that is not the case or, in some instances, it will not allow an agent to make a gift in excess of $14,000 per person, per year. When a power of attorney does not include a statutory gift, rider authorizing major gifting power, it may result in an agent being unable to transfer assets. This may result in the Principal being unable to transfer funds to be eligible for Medicaid or to receive reductions in estate tax. Furthermore, a broadly drafted power of attorney with language permitting an agent to create a revocable or irrevocable trust on behalf of the creator can save a tremendous amount of money in the future, whether it is for estate planning or long-term care planning purposes.
In New York State, an agent is permitted to gift and transfer assets to themselves and others. However, this is only allowed if the power of attorney clearly states that the agent can do so. This is referred to as a statutory gift rider, also known as a gifting clause. By establishing a power of attorney with a gifting clause, it allows an agent to make gifts or transfer assets for purposes such as long-term care planning or to meet estate and income tax needs.
A common question people ask regarding the establishment of a power of attorney is, will the principal lose control of his or her finances and assets after the legal document is established? The answer is “perhaps”. The principal still has the right to control his or her financial resources and properties. However, with the establishment of a power of attorney, the principal allows the agent access to their finances without permission. For this reason, it is important that individuals choose an agent they trust who will not be dishonest or unscrupulous with the assets.
For individuals seeking to establish a power of attorney, it is important that they consult an experienced estate planning lawyer who will draft the document to meet your current and future needs and wishes. The elder law and estate planning attorneys at Tanya Hobson-Williams, PC are skilled in all aspects of estate planning and are dedicated to representing its clients with diligence and compassion during emotional times. Contact the experienced New York estate planning and elder law attorneys at Tanya Hobson-Williams, PC for a consultation by calling (718) 210-4744 or by filling out our contact form