Written by attorney Jeffrey A. Marshall

Financial Powers of Attorney: How to Protect Yourself

We never know what life has in store for us. Hopefully we are realistic enough to understand that we are always at risk of becoming temporarily or permanently incapacitated due to accident, illness, or aging. A power of attorney allows you (the “principal") to give someone else (your “agent") the authority to act and make decisions for you in you are ever unable to act on your own behalf. If we do lose the ability to make our own decisions, the power of attorney may become the most important legal document we ever signed. Through advance preparation we can help ensure that the right decisions will be made for us by the right people at the right time and that our goals and values will always be respected. Powers of attorney can be created to deal with personal and health care decisions, or financial matters, or both. This article will focus on the latter. How can you ensure that this most important document will best meet your needs and goals if your agent is ever required to act? Your financial power of attorney document should not be a simple and standard commodity. This fundamental planning tool is far from simple. It needs to be prepared with your individual circumstances and goals in mind. Try to avoid having standardized form document or one that limits your agent to the authority described in a state law. Standard forms may omit functions that could end up being essential to allow your agent to meet your needs and achieve your goals. The best financial powers of attorney are not one-size-fits-all. For those of us who are at risk of needing long term care (that’s pretty much everyone) a financial power of attorney can be the key that opens the door to effective asset protection planning. Or it can close the door on protecting our assets for ourselves and our loved ones. Unfortunately many documents, even when prepared by a lawyer, fail to address the critical issue of paying for long term care. Long term care is not covered by Medicare and most private insurance policies. Asset protection planning may be required to protect what you own from the cost of care. But this is a highly specialized area of law and you need a lawyer who understands it and is an expert in needs based benefit programs like Medicaid and VA pension. If protecting your home and other assets from the cost of long term care is one of your goals you need to (1) find a lawyer who is expert in this kind of planning, (2) discuss your wishes with the lawyer – don’t hesitate to bring the matter up yourself if the lawyer fails to do so, and (3) make sure your power of attorney specifies the conditions, if any, under which our agent will be authorized to divest our assets in order to preserve them. The absence of appropriate authorizations in the document can seriously jeopardize the financial security of your spouse and family. On the other hand, a power of attorney can be used as a tool for elder abuse or to thwart our desired estate plan. The best power of attorney documents are finely tailored to meet our goals, given our unique circumstances, concerns, and needs, while protecting us from the potential for abuse. This is not a simple planning document. Here are some things for you to think about and discuss with your lawyer.

  • Consider options that can limit the potential for exploitation by your agent - e.g., limiting your agent's power to make gifts, naming co-agents who must agree, requiring reporting by your agent to a third party;

  • Don’t rely on a “standard" power of attorney form from the shelf or computer. A Power of Attorney should be drafted with care and concern for the your particular circumstances, needs, and goals.

  • Have an in-depth discussion about whether to give your agent the authority to make gifts on your behalf. Failure to have the appropriate gifting provisions in the document is one of the most frequently encountered problems with powers of attorney. This failure can delay your qualification for Medicaid and VA benefits, result in the need for guardianship or other court involvement, and create the potential for litigation between family members.

  • Consider whether to waive “fiduciary duties" for trusted family members. For example, you may or may not want your spouse or child burdened with state mandated record-keeping mandates. Record-keeping requirement, prohibitions against self-dealing and commingling funds, and other fiduciary duties can be waived when the power of attorney is created, but the waiver must be explicit.

  • Where appropriate, consider protecting yourself from the inappropriate use of gifting powers by the agent. You can build in protections against abuse of gifting power by:

    • requiring that all gifts be approved by persons other than the agent;
    • limiting the persons to whom gifts can be made (e.g., allowing gifts to be made only to your spouse);
    • requiring that gifts be made in equal amounts to all your children;
    • requiring that the agent report all gifts made by the agent (e.g., to another family member).

Talk to your children and any other family members who may someday be involved in your care. Prepare them for the day that you may need to rely on your designated agent. Tell them about the preparations you have made. Ask them to communicate with and support your agent and each other. Encourage them to hire expert help if they need to do so. An accountant, lawyer, and care manager can all contribute to your well being and financial security and help your family avoid problems. Here are some things for you to consider if you are named as someone’s financial agent. 1. Seriously consider whether or not to accept the responsibilities of agency before commencing down this perilous road. In Pennsylvania and many other states the agent is required to sign a written agreement to serve before they are legally entitled to act. This spotlights the seriousness of this undertaking. 2. Seek expert help and become educated about your responsibilities. Legal, accounting, and care planning help from the outset may be advisable. 3. Assume that you will someday be called to account for all of your actions as agent. Be prepared from the moment you begin. Keep receipts, checks, and other records.

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