Everyone should plan for the possibility that they may be unable to handle their financial affairs because of an incapacity such as illness, injury or age. A financial power of attorney is an important part of estate planning to deal with this contingency, but it must be clear when addressing incapacity.
The following are some ways an estate plan can do this.
Alternative agent
Appointing a competent and trustworthy agent to act on your behalf is difficult but essential. But your best choice cannot be your only choice.
It is also important to name an alternative agent to manage your affairs if your first choice dies, becomes incapacitated, resigns, or refuses to act. A court may end up appointing a new agent whom you may not prefer if you neglected to select an alternative.
Springing agency
A springing power of attorney restricts your designated agent from exercising powers until a triggering event occurs. However, this may cause delay and doubt. Financial institutions are more hesitant to accept spring powers of attorney without proof that a triggering event occurred.
The durable power of attorney authorizes powers that may be exercised immediately. But it is important to select an agent who will not exercise their powers until they have to. Clearly communicate your wishes to them.
Gifts
Granting your agent gift-making authority may be beneficial. Your agent can give birthday gifts, for example, to your relatives and friends on your behalf. They may also continue to make contributions to your favorite charities. Making gifts can help manage Medicaid eligibility and reduce estate taxes.
But the power to make gifts may risk financial abuse or fraud. To avoid this, consider restricting your agent’s authority to make gifts, especially gifts to themselves.
Changing agents
Powers of attorney typically contain language revoking or canceling earlier powers of attorney. To avoid confusion or other problems, notify agents under previous powers of attorney that their authority is revoked.
If you provided a power of attorney to financial institutions, update them on any changes. Provide them with a current document.
An effective power of attorney requires planning and knowledge about your needs. You may also seek assistance to assure that these documents comply with Pennsylvania’s legal requirements.