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By John M. Bigler It is time once again to revisit the confusing world of powers of attorney. As regular readers know, I have dealt with this issue on several occasions. However, it is worth revisiting, not only because of recent court cases, but because many people think that they can properly prepare this document on their own. That can be a costly mistake.
The power of attorney is a delegation of legal authority by principal to an agent that allows the agent to act in the principal's behalf. There are several types.
The springing power of attorney only takes effect when a person becomes disabled or incompetent, but often the agent is faced with having to prove that a principal is disabled or incompetent.
The most common power of attorney is the durable general power of attorney, which takes effect immediately upon execution and remains effective even if the principal becomes disabled or incompetent.
All powers of attorney terminate with the lifetime of the principal.
The durable general power of attorney is the only type of document that I prepare for clients. In the practice of elder law, the need for a one-time general power of attorney does not arise often, and I simply do not like the springing power of attorney because of the additional layer of complexity. My feeling is that if the principal is so uncertain as to the reliability of the agent that they only want them to take over at some point in the future, then they shouldn't execute the document at all. It is necessary to have confidence in the agent or co-agents. The agents have a duty to act in the principal's best interest, but that is not going to stop a dishonest agent from acting inappropriately.
It is most important to understand that, for elder law planning, the power of attorney form available in stationery stores, known as the "short form power of attorney is inadequate. All powers of attorneys list a series of powers granted to the agent. The short form lists the bare bones powers. Particularly problematic is the authority given to the agent to make gifts. In the short form, the agent is limited to making gifts of $10,000 per year and only amongst family members. The $10,000 is an outdated term because it refers to the annual gift tax exclusion, which is now increased to $12,000 per year. However, in order for a power of attorney to be effective in elder law planning, it is extremely important that the gift giving powers be expanded. A properly drafted power of attorney should indicate that the agent has unlimited authority to make gifts including to him or herself. In New York State, in addition to being allowed to gift $12,000 a year, we are also entitled to gift $1 million in our lifetime without any federal gift tax consequences. Oftentimes, as part of a Medicaid plan, it is necessary to make large gifts. The standard form simply won't do.
In the past, we were able to use a simple form that included the power "all other matters." That delegation of authority is no longer accepted by the courts as a grant of authority that allows the agent to do whatever he or she feels is appropriate. In the recent decisions, the courts have required the agent to have been granted specific authority to undertake any activity. The courts have also emphasized the agent's duty to act in the best interest of the principal. Failure to do so will negate the actions of the agent.
The bottom line is that in an attempt to save money, I see many people either purchase the power of attorney form from the stationery store and think that they are covered or, on the other hand, pay a family attorney to prepare a power of attorney only to find out that the document prepared is the stationery form. My colleague, James Klein, Esq., of Floral Park, who is a highly respected estate planning attorney, recently put it as only he can: People would never think of doing their own appendectomy and yet they think nothing of preparing their own power of attorney.
It does not cost a lot of money to have an expert prepare the power of attorney, and by having a properly executed power of attorney, a costly and time-consuming guardianship proceeding - and potentially thousands of dollars in medical costs incurred during the time it takes to have a guardian named - can be avoided. Clearly, this is an updated version of penny wise and pound foolish.
Reprinted with permission of the Suffolk Times © 2006 [ Contact Us ] [ Guestbook ] [ Email ]  The Law Offices of John M. Bigler, Attorney At Law 1421 Wantagh Avenue, Wantagh, New York 11793-2206 1-888-ELDER-LAW · 516-409-6565 · Fax: 516-409-6522 E-Mail: info@biglerlaw.com · Web Site: www.biglerlaw.com |
The general power of attorney, which takes effect immediately upon the document being signed and notarized, is typically used on a one-time basis for a single specific purpose. For example, it useful if someone is out of state and wants to delegate authority to an agent to execute particular documents one time only. The general power of attorney become ineffective if the principal becomes disabled or incompetent.