Brown & Associates - Attorneys & Counselors at Law, P.L.L.C.

POWERS OF ATTORNEY CAN ACCOMPLISH ESTATE PLANNING GOALS
(9/23/01)

Last week I talked to you about some tools that are helpful to you in meeting your estate and financial planning goals. Today, I want to talk to you about durable powers of attorney. These are instruments which enable someone else to take actions on your behalf, even after or when you become incapacitated. The key to their effectiveness is "specificity"; that is, if you want your agent or attorney-in-fact to be able to do something for you, spell it out.

Areas of Concern

This is particularly important in three key areas: health care planning, lifetime gifting, and the use of disclaimers to accomplish tax saving and asset protection goals.

The State of Oklahoma has approved a "Statutory Power of Attorney" which allows you to grant powers to your agent by simply "checking the block." While there isn't anything wrong with this format, we tend to favor a more specialized power of attorney that we can customize to each client's needs.

One reason I don't use the statutory form is that I'm always concerned when I see powers in bullet form, rather than fully spelled out. The statute amplifies and explains each of these powers, but that means the agent or the entity being asked to accept the power of attorney will have to research the law to see what the agent is authorized to do.

How do I make sure my wishes will be carried out?

That's a good question and brings me to my second point. Many medical providers want to know what you meant--what your intent was--when you authorized your agent to make medical decisions on your behalf. Just how much authority did you really want your agent to have? This can become important if your agent is directing your doctor to perform a delicate or high risk operation. What if you're the primary beneficiary and will benefit if something goes wrong? No one wants to impute improper motives to your actions, but if the power of attorney isn't properly worded, this could become a matter of concern to the physician being asked to perform the surgery.

You can overcome this problem with a customized power of attorney that states when you want your agent to take action, what actions he or she can take, and whether someone else needs to be consulted or to join in the decision. With a specialized form such as the ones we prepare, you can be very precise in your choice of language-you can't be this precise if you rely on the statutory form.

If I want my agent to make financial decisions for me, what do I need to do?

Financial institutions, especially corporate trustees, are very uncomfortable with general guidelines. While these aren't life or death decisions, they involve your financial security and institutions are understandably hesitant to accept or direct disclaimers or lifetime gifting unless your intent is clear from the instrument.

You have to understand their concern. Corporate trustees have good reason to be leery of such situations. If a corporate trustee is acting as your agent under a power of attorney and is called upon to make a gift to one or more of your children, it knows that as soon as it does so, your spouse or any other person entitled to share in your estate can bring suit against it alleging that the trustee/ agent has diminished the assets available for distribution.

Be very precise in your intent. You might say something like: "my intent is to maximize gifts to my children, while providing a minimum standard of living for my spouse." You can also limit the size of gifts or provide restrictions, such as "any gift to my attorney in fact must be approved by all of his brothers and sisters."

What If I want my agent to be able to disclaim property on my behalf?

Include specific intent language, such as "my attorney in fact may execute a disclaimer on my behalf if my attorney-in-fact deems the execution of such disclaimer to be in the best interest of my estate for tax purposes." This means your agent can disclaim an interest to avoid estate taxes, but not to push funds down to your heirs or for any other reasonable (but not authorized) reason. Once your agent executes a disclaimer, he or she forfeits your right to these assets. Neither you nor your estate will receive them. They are gone. Finito.

By spelling out the reason for the disclaimer, your agent will be less vulnerable to being sued and will have a defense to a claim that he or she improperly decreased the assets available to the heirs.

Unless your instructions are clear, most corporate trustees and agents will not honor your instructions. Most individuals who are acting as agents would be well served by following the same rule. That is, only do that which is clearly and unambiguously authorized by the controlling instrument.

Watch out for the IRS!

Even if no one sues your agent for making a gift, the agent isn't home free. The IRS can challenge the gift and add its value back into your estate as an incomplete gift. Federal Courts have held that a power of attorney cannot be "enlarged by implication or construction." If it doesn't specifically authorize the making of gifts, the transfer may fail.

If the power of attorney authorizes an agent to make gifts to himself or herself, this could have an unintended tax consequence. Some courts have interpreted this authority as constituting a general power of appointment. If the agent dies holding a general power of appointment over property, the property will be included in and taxed as part of the agent's gross estate.

The bottom line is clear. Don't use a general and unrestricted provision in a power of attorney as a substitute for an explicit and restrictive gift-giving or disclaimer provision. Be sure to consult with a professional who can help you implement your estate plan with a properly drafted power of attorney.

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