Powers of an Attorney in Fact to complete an estate plan.
In order to create or change a will, a person has to have the ability to know what he or she owns, identify his or her value, and name the objects of his or her bounty. For some, in late stages or neural disease or coma, this is impossible. But, your power of attorney may still have the powers to complete your estate plan. How?
(Yes, I am an attorney, but I am not your attorney. Nothing in this post should be construed as legal advice. Nothing in this site or this post shall be construed to contain an attorney-client relationship. This post is merely informational and educational. Further, this site contains affiliate links from which I may receive a small commission if you make a purchase. For more information click here )
Your power of attorney grants your attorney in fact or agent (the person who makes decisions on your behalf) the right to make almost any decision that you can make. However, there are some limitations.
For example, your attorney in fact does not have the right to sign a will on your behalf. But, what powers does your attorney in fact have over your estate plan?
WHAT IF I LACK CAPACITY TO SIGN A WILL?
Many people come to my office to ask me what they can do to help their loved one who is in late stages of dementia or physical impairment. I am asked regularly to prepare wills on behalf of people who no longer have the mental capacity to sign those wills.
I won’t do it. And, neither will any other reputable attorney.
To sign a will, a person must know what they own, its approximate worth, and who they want to give it to. If the person can’t tell me that, then I won’t make them a will.
However, you still have an opportunity to create an estate plan even without a will. If you have a power of attorney, the attorney in fact may still be able to accomplish your estate planning wishes even without a will.
WHAT ESTATE PLANNING LIMITATIONS DOES MY POWER OF ATTORNEY HAVE?
Contrastingly, some people come to my office asking whether an attorney in fact can take certain actions. While most POAS (powers of attorney) contain broad sweeping powers, all states impose some limitations on those powers.
While most states explicitly prohibit an attorney in fact from making a will on behalf of an incapacitated individual, the attorney in fact can still achieve the bulk of the estate planning objectives.
Thus, while your jurisdiction likely won’t allow your attorney in fact to sign your will, he or she can still accomplish an estate plan.
WHAT ESTATE PLANNING POWERS DOES AN ATTORNEY IN FACT HAVE?
An estate plan is not merely a will. Your estate plan is not complete with only a will. Further, your circumstances might require more than just the basic estate plan.
As I have mentioned ad nauseum here on this site, wills are not the only estate planning tool. For you, a trust might be right.
(To read more about why a TRUST might be right for you, click here.)
For someone else, beneficiary planning might be right.
(To read more about some of the types of estate planning and non-probate transfers, click here.)
For still others, a will and probate might be the right decision.
(To read more about what Probate is and an overview, click here.)
In any event, you should meet with a reputable estate planning attorney in your jurisdiction to discuss your personal circumstances and wishes.
And, while your attorney in fact probably lacks the ability to sign a will in your jurisdiction, he or she still yields considerable power over your estate plan.
Some of the estate planning powers include:
1. The power to change beneficiaries
In most states, an attorney in fact, with no restrictions on his or her powers, has the right to change, alter, modify, amend, delete, or revoke beneficiary designations.
This includes beneficiaries on accounts, retirements assets, property, and more. If the right to add a beneficiary exists for the principal (the person who made the power of attorney) then the right exists for the attorney in fact.
Therefore, if the principal is unable to sign a will, the attorney in fact can come in and change the beneficiaries on the accounts, property, and more to make sure that distributions after death pass to the principal’s intended beneficiaries.
For example: adding beneficiaries to life insurance policies, bank accounts, or retirement accounts.
2. The power to administer retirement accounts.
Your state law likely allows powers of attorney to administer, manage, and deal with retirement accounts. This includes the right to receive or refuse RMDs, invoke QCDs, increase distributions, change underlying investments and more.
Thus, for estate planning purposes, the attorney in fact has the ability to manipulate the retirement accounts to achieve the principal’s estate planning objectives.
For example: Setting up QCDs or RMDs, adding beneficiaries on the accounts, increasing draws, or closing investment accounts.
3. The power to sign deeds, sell property, and take mortgages.
Most property powers of attorney (to read more about different types of powers of attorney, click here LINK), allow attorneys in fact to transact real property transactions on behalf of the principal.
This means that your attorney in fact has the right to add joint owners, sell property, sign for mortgages, add transfer on death deeds, and more.
While you may lack the sufficient legal capacity to contract or sell property, the power of attorney/agent likely has the right to step in and do it for you. Thus, the agent has the power to transfer property in contemplation of the principal’s desired estate plan.
For example: selling the family home, signing for a HELOC, or adding joint owners.
4. The attorney in fact has the power to change bank account and investment account information.
If you failed to add beneficiaries, close accounts, transfer bank balances, or update investment account information, your power of attorney allows your agent to complete those tasks for you.
Your power of attorney likely empowers your agent with the right to manipulate, transact, open, close, change, modify, alter, amend, or borrow.
This means that the attorney in fact likely has the right to make changes to any of your accounts. If the principal fails to make changes to accounts in furtherance of his or her estate plan, the power of attorney can accomplish this.
For example: opening a trust account, removing joint owners, or opening guardianship accounts.
5. The attorney in fact has the power to form revocable trusts.
In most jurisdictions, the unrestricted attorney in fact has the right to form trusts on behalf of the principal. In many states, this right is restricted to revocable trusts where the trust terminates on the principals death.
However, several types of trusts terminate on the grantor’s death, and accomplish a variety of goals not the least of which is avoiding probate. (Qualified Income Trusts, for instance.)
(To read more about why you might want to avoid probate, click here.)
Thus, while your attorney in fact may not have the right to sign a last will and testament on your behalf, he may still be able to form a trust, transfer your assets to the trust, and name your trust as beneficiary. Ultimately, this accomplishes the same goal as the will.
For example: a revocable living trust where all income passes to the principal for life then transfers to his beneficiaries at death.
6. The power to make business decisions.
Your attorney in fact likely has the right to form, manage, alter, or ultimately dissolve your business.
For some, this means the ongoing management of a family business.
For others, this means the formation of a limited family partnership, a closely-held LLC, or other estate planning business strategies.
While your attorney in fact can’t sign a will, he or she has the right to transfer all of your assets into a business, manage that business, pass out family shares or membership interests, and disburse the assets after your death.
For example: a family LLC that manages a number of rentals, agricultural property, or other family assets.
LIMITATIONS ON POAS
A power of attorney can be tailored to include or exclude nearly any power within the confines of your states’ laws. Therefore, if you want to include or exclude any of these powers, your attorney can customize your power of attorney.
Further, just because you have a POA does not mean that you have the above-mentioned powers. Not every state nor every POA includes estate planning powers. Check with an attorney.
I always recommend that you have absolute trust in your named agent. However, if you have any reservations, or perhaps, your estate planning delegates different powers among different people, then you should restrict some of these powers.
(For important considerations in choosing a power of attorney, click here.)
WARNINGS FOR CREATING YOUR POWER OF ATTORNEY
Those unfettered estate planning powers are also a double-edged sword. While these powers give your attorney in fact the authority to make important estate planning decisions, they also have the potential for abuse.
Your power of attorney document binds your attorney in fact to make decisions in your best interest or in the same manner that you would make those decisions. Your attorney in fact’s failure to abide by your wishes and interests subjects them to potential liabilities.
However, proving that an attorney in fact has violated the terms of the power of attorney is quite difficult and costly. Your agent could make off with the entirety of your assets before you know what happens, and you could spend the next decade arguing about where the money is and how to recover it.
Therefore, while these powers are extremely helpful for achieving a person’s estate plan, they are still a risk if you do not completely trust the person you appoint.
IMPORTANCE OF POAS FOR COMPLETING AN ESTATE PLAN
Despite the potential pitfalls, powers of attorney are an invaluable estate planning tool. Not only do they protect your dignity, but they allow your trusted agent to complete the tasks that you may no longer have the ability to do.
Further, if you are an agent for a loved one, your loved one doesn’t need to die without an estate plan simply because he lacks capacity to sign a will. Use your POA to complete those tasks for him or her.
A power of attorney delegates a fair amount of estate planning authority to an agent or attorney in fact. That agent likely has the authority to designate beneficiaries, change accounts, move property, or even set up a trust.
Those powers combined are likely more potent than a will by itself and allows an attorney in fact to adapt to Medicaid changes, tax laws, and changes in the family.
To create your power of attorney or appoint your attorney in fact, meet with an estate planning attorney in your area as soon as possible!