Estate PlanninG

Powerful Provisions to Consider in Your Financial Power of Attorney

A financial power of attorney allows you to choose a trusted decision-maker (agent or attorney-in-fact) to act for you if you become disabled or unable to manage your financial affairs.

Depending on the provisions you include, your agent may have the power to buy and sell property, the power to invest, and powers regarding your retirement benefits. When you are selecting powers to give your agent, you should carefully consider the following three powers in particular:

  1. The power to gift

  2. The power to make or change your estate plan

  3. The power to prosecute and defend legal actions

The Power to Gift

Depending on how it's written, the power to gift allows your agent to gift your money and property to a person or organization on your behalf.

On the one hand, this power could be beneficial because it can enable your family to accomplish necessary Medicaid and other public benefits eligibility planning after you become incapacitated. It also allows your agent to continue your charitable giving practices, such as tithing to your church or donating to your favorite charities or scholarship funds. In addition, if a need arises after you can no longer manage your affairs, it allows your agent flexibility to financially help family members the way you would have.

On the other hand, it may invite financial exploitation by the agent. An agent could be tempted to make substantial gifts to themselves or their loved ones to the detriment of your chosen beneficiaries. Abusing the power to gift can disrupt an entire estate plan. Therefore, you may want to specify that your agent can't make gifts that disrupt your estate plan's essential provisions or that your agent makes gifts only to a trust that preserves your estate plan's main provisions. You can name an independent third party to approve any gifts made by your agent.

The Power to Make or Change Your Estate Plan

This power is sensitive because it also invites potential exploitation by an agent who could create or alter your estate plan so that they receive all of your property or more than the share you want them to receive. On the other hand, such power can allow a trusted agent to alter an estate plan in a way and under circumstances that you would have wanted but are now unable to do yourself. For example, if a child develops an addiction after Mom and Dad become incapacitated, this power would allow the agent to alter the estate plan to include provisions that would let the child receive their inheritance with restrictions that would help treat their addiction and not detrimental in their current situation. Thus, the power to make or change an estate plan could allow a beneficial change for the loved one who is going through a messy divorce, facing bankruptcy, or dealing with an addiction.

Again, when including such a power, you may want to consider including limiting language so that if an agent makes a change to your estate plan in a way that improperly benefits themselves, they first have to get approval from a third party.

The Power to Prosecute and Defend Legal Actions

This power allows your agent to start, settle, defend, intervene in, and appeal a legal action. The following example illustrates this power's benefit:

Example: Karen goes to her estate planning lawyer's office and signs a power of attorney that includes the power to prosecute and defend legal actions. A short time later, Karen goes into a nursing home where she has a fall that causes a stroke. The nursing home staff fails to check on her for more than sixteen hours, which results in brain damage and leaves Karen significantly paralyzed. Karen's son, who is her agent under her power of attorney, seeks out a medical malpractice lawyer who advises him that Karen has a claim against the nursing home. Because Karen's power of attorney allows her agent to initiate legal action, the medical malpractice attorney can immediately file a lawsuit against the nursing home. Without that provision, Helen's agent would have first had to go to court and seek guardianship. Granting the power to prosecute avoided that delay and additional expense.

The downside to including the power to prosecute and defend legal actions is that an agent could conceivably abuse the power to harass or seek revenge on another person, such as a sibling they hold a grudge against. It may be possible to guard against such abuses by including limiting language that excludes legal actions against family members.

Overall, you should carefully discuss the potential pros and cons of these powerful provisions with your attorney before deciding to include them in or exclude them from your financial power of attorney. If you have questions or would like to discuss other ways we can safeguard you, your loved ones, and your life savings when you can no longer manage your affairs, contact us to schedule an appointment. Call Santaella Legal Group, serving all of California, at (925) 831-4840.

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