How a power of attorney is phrased will impact the authority granted.

So much in life is outside of our control as individuals.

Accidents and illness can strike at any moment and leave you or your loved ones incapacitated.

When this happens, the incapacitated individual can no longer manage his or her finances.

According to a recent Forbes article titled “4 Power of Attorney Clauses You Need To Focus On,” creating powers of attorney as a part of a comprehensive estate plan is essential to protecting you and your loved ones.

A power of attorney is not a one-size-fits-all document.

What is a power of attorney?

Generally speaking, a power of attorney is a legal document through which you grant an agent authority to manage assets held in your name and take care of a broad range of other financial matters on your behalf.

If you own a trust, the power of attorney will not cover the assets held by the trust (with very limited exceptions and only with special provisions in the trust).

Rather, the trustee will have authority over these assets to act in accordance with instructions in the trust documents.

Although there are several types of powers of attorney, the two most common are the Springing Power of Attorney and the General Durable Power of Attorney.

What are the differences?

The Durable Power of Attorney will be effective when signed and will remain valid should you become incapacitated.

With a Springing Power of Attorney, the document will only become valid if you are incapacitated.

Your situation will influence what type of power of attorney you choose.

Often estate planning attorneys will recommend a Durable Power of Attorney because extra steps are required to prove incapacity with Springing Power of Attorney.

I, for one, am in that camp.

Whichever option you choose, the authority of the agent will end when you die.

Because the financial stakes are high, you should think carefully about your goals and concerns prior to signing the document.

Start by deciding on an agent (also known as an "attorney in fact").

The agent you choose should be trustworthy because they will have control over your assets while you are incapacitated.

While choosing more than one agent to serve concurrently may seem like a good idea for accountability, time-sensitive decisions could be delayed and become costly.

Next, you should consider whether you want to grant authority for your agent to make gifts.

If you need to reduce your taxable estate or qualify for government benefits, allowing for gifts may be a smart choice.

Should you decide to allow for gifting, you should set limits as to who can receive gifts and how much can be given.

Often the amount is capped at the annual gift exclusion of $15,000.

You should also reflect on how you want your agent to be involved in your estate planning.

Do you want your agent to have the authority to change beneficiary designations on your accounts?

If no, you will want to specifically state this in your power of attorney documents.

Another consideration is whether you want your agent to be able to amend the trust.

Most people do not want their agent to have this authority.

Another estate planning consideration involves naming a guardian should you require one.

Because a power of attorney conveys significant authority, you should work with an experience estate planning attorney rather than simply downloading a template from the internet.

Reference: Forbes (July 19, 2021) “4 Power of Attorney Clauses You Need To Focus On”