Five Things in Every Good Power of Attorney

#estateplanning #financials #guides #planning #probate #trustplanning asset protection attorney advice estate planning attorney health care power of attorney lawyers advice powers of attorney trust planning Feb 12, 2024
Attorney holding up five fingers in front of a person signing paperwork

As I was recently reminded while reviewing some legal documents for a prospective client, not all power of attorney forms are created equal. In fact, some people may mistakenly believe they are covered when that is far from the truth. Here are the five big things every good power of attorney should have:

* Sufficient Agents: Unfortunately, I review many power of attorney documents that have an agent named but then either no backups or only one backup. Considering it is likely years between people addressing their estate documents, this is simply not enough. We strive to have at least three agents named in succession in order to make sure that our clients are covered in case something happens to their agent before something happens to them.

When Document is Active: While many people absolutely need to have a power of attorney be active when they are incapacitated, the norm, at least in North Carolina, is for a power of attorney to be active immediately. The reasoning behind this is that banks and other financial institutions are often requiring extensive forms be utilized rather than simple doctor notes to determine incapacity, and doctors simply don't have time to fill out those forms. Therefore, the easiest way around this paperwork is to make the power of attorney agent active immediately. The biggest pushback question is "what if the power of attorney agent starts stealing money behind my back?" That's a valid concern, but the answer isn't to set up roadblocks for the power of attorney agent to become active, but it means you should be picking more trustworthy people to be your power of attorney.

* Detailed Powers Listed: A power of attorney agent can only do what is authorized by law AND what is detailed in the power of attorney. Unfortunately, there are a lot of simplistic documents out there called a "short form" power of attorney. These usually just list a few broad areas of authority, the person granting the power initials next to the powers they authorize, or most likely they initial one spot that says they authorize all powers. Unfortunately, there is a chasm between what people think these powers mean and what financial institutions actually interpret them to mean. For example, the broad powers of "real estate" and "banks and other financial institutions" could both  be marked off, but the mortgage company may state that doesn't cover refinancing a mortgage. However, the "long form" power of attorney documents will lay out all of the specific types of transactions authorized, including dealing with and negotiating mortgages and debts. North Carolina in particular has been notorious for denying power of attorney transactions unless the document states the specific type of transaction is authorized.

Gifting Powers: Every power of attorney should list whether or not the power of attorney agent can gift assets away and to whom they can gift, and state laws often provide that a power of attorney can't make gifts to themselves unless specifically authorized. The most common framework is to allow gifting up to the annual federal gift tax limit, (currently $18,000 per giver per recipient) and it is limited to descendants and/or people listed as beneficiaries in a Will or trust. While these terms are designed to prevent an agent from giving everything away, they can be disastrous when planning for Medicaid qualification. When someone needs to "spend down" their assets in a coordinated fashion in order to qualify for Medicaid, they may need to gift everything at once to a Medicaid qualified trust or through some other strategy. However, if the power of attorney agent is not allowed to gift beyond the annual $18,000 limit, then they could inadvertently lose everything to the nursing home instead of protecting their life savings for the family. This is why my firm provides a specific exception to any of the gifting limitations if the goal is to qualify for public benefits.

HIPAA Waiver: While health privacy is usually more of a concern with a health care power of attorney agent, it is still necessary for financial agents to gather "health related" information, so HIPAA waiver language should be included to make sure there is no question your agent is entitled to this information. Wait a minute... why would a financial power of attorney need health information? Imagine a hospital submitting a bill to the power of attorney agent for a huge lump sum, the agent asks for a detailed invoice so they know what they are paying for, and the hospital states they can't list the procedures and tests because it discloses health information about the patient. It's also important to note that some attorneys handle HIPAA waivers differently by having a separate HIPAA waiver document, but I have found it far simpler to put the waiver language directly into both the financial AND health care power of attorney documents.

These are just five items in every good power of attorney, but there are more. To learn more about estate planning, please check out the free program at

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