When most people hear the term “estate planning” they think of a Last Will and Testament. After all, the Will is typically the cornerstone of one’s estate plan. However, for most of us, it is statistically more likely that we suffer a disability, then die. Therefore, to deal with the problem of disability, many look to another cornerstone of the estate plan: the durable power of attorney.
To put the problem in focus, consider the typical married couple. Suppose the husband is stricken with Alzheimer’s Disease or severely injured in an auto accident. Because of the illness, it may be necessary to sell the real estate or some of the other assets. Since it will be necessary to have both spouses join in the sale of any jointly-owned real estate and since only the husband can deal with his individually owned assets, it may be necessary to have the court appoint a guardian to represent the disabled spouse. As with most court procedures, a guardianship proceeding takes time, it is costly and adds to the problem already being endured by the family.
A simple way to prevent such a situation is to execute a durable power of attorney. The power of attorney is a fairly simple document that allows one person to empower another (technically known as the attorney-in-fact) to act on his or her behalf. The powers given to the attorney-in-fact can be as broad or specific as you wish and can last until death or some earlier point in time.
There are no restrictions on who you can name as your attorney-in-fact. Typically, however, spouses will name each other and then a child or children as successors in the event the spouse dies or is unable to act. When it comes to granting powers to your children, it may be best to name at least two of them and require that they make decisions jointly. By requiring joint action, you can prevent situations where one child could abuse his or her powers.
In the estate planning context, the power of attorney is often executed as a precautionary measure, long before the onset of a disability. Accordingly, when the document is prepared, the powers given to the attorney-in-fact should be broad enough to cover just about anything that can be expected. One area that seems to create a number of problems is the power to make gifts. For example, in a recent case, a mother had appointed her son as her attorney-in-fact and she later became disabled. In acting for his mother, the son desired to make gifts of her property to himself and his brothers and sisters in order to reduce the estate taxes on his mother’s death. Unfortunately, however, although the power of attorney gave the son general powers to act for his mother, the power of attorney did not specifically confer the power to make gifts. As such, this tax-saving option was not available to the family.
In another recent case, however, giving the power to make gifts created problems. In that case, father granted general powers to his daughter. As the father’s health worsened, the daughter decided to put the father’s home in her own name. When the father later died, his will named his three children as equal beneficiaries. However, since the house was no longer part of the father’s estate, two of the children received very little. Feeling slighted, they ended up suing their sister claiming that it was not proper for her to make a gift of the house to herself. The court reviewed the power of attorney, found that it permitted such gifts, and therefore approved the daughter’s actions. Once again, not enough thought was given to the exact authority being granted. In this case, the problem could have been avoided if the power of attorney included a provision requiring that any gifts to children be made in equal shares.