Powers of attorney are often signed as part of your estate plan without much consideration. However, they are a powerful tool and should not be overlooked, as they can often lead to abuse. A power of attorney can allow a trusted friend or family member to pay bills for you, deposit checks, and assist you with financial transactions. The agent you name can often take any financial action you could take on your own. However, a power of attorney can also allow an unscrupulous person to take advantage of you by moving money into his own account, paying his own bills, making cash withdrawals, or selling your real estate. There are critical steps you can take to protect yourself, your heirs, and your assets.
It is important to name a trusted individual as your agent. You may also be able to name two agents who have to act jointly. Naming two agents can be cumbersome as they will need to agree on the actions to take and then execute them together; however, it may provide an added layer of protection for you.
Assuming you have chosen a trusted individual to name in your power of attorney, you should review the specific provisions to see what actions your agent can take on your behalf. Common provisions include the ability to bank (including the ability to open bank accounts and write and cash checks) and sell real estate. You should also consider whether the agent should be able to change the beneficiaries of your life insurance or retirement accounts or amend your trust. These actions would allow the agent to change who receives your assets on your death. It also may be possible for the agent to divert the assets to himself.
Another important provision involves gifting. You will need to decide whether your agent will be able to make gifts on your behalf. The power to give your money away can significantly impact whether there will be enough money left for your care and whether there will be enough money left for your heirs to receive when you die.
There may be advantages to allowing your agent to make gifts on your behalf. For instance, if you have a pattern of lifetime giving, you may want your agent to continue those gifts. If you make annual exclusion gifts ($19,000 per person in 2026) to children and grandchildren, you may want your agent to continue those gifts. The same applies for gifts to charities that may be important to you. Your agent can continue your yearly charitable giving on your behalf.
Whether the agent can make gifts in excess of $19,000 and whether the agent can gift to himself are important decisions you will need to make. Attorney Tiffany Bentley, a Massachusetts attorney who was recently involved with a case where the court sided with an agent who had made gifts to himself, says the best practice for structuring powers of attorney is threefold: “Clearly state whether the agent can make gifts to himself, specify who the gifts can be made to such as children, descendants, spouses, charities, and define any limits.” Gifts can be limited in amount, or they can be limited to a purpose such as to reduce estate taxes or to qualify for a government program. Gifts to charities can be limited to maintaining your lifetime giving pattern.
Depending on the state you live in, your state’s laws may differ, so it is important to speak with your lawyer about your power of attorney. And if your power of attorney is more than a few years old, consider signing an updated one, which will be easier for your agent to use if it is ever needed. The decisions you make today about your power of attorney can have lasting consequences for your financial security, your family, and your legacy.
