Asset transfers between individuals or estates are considered taxable events by the Internal Revenue Service.…
As part of your estate planning process, you should implement Power of Attorney (POA) documents. All states recognize powers of attorney, but rules and requirements will differ from state to state. The document gives one or more individuals the legal authority to act as your agent or proxy on your behalf. Depending on which POA you choose, the agent’s power may be limited to a particular activity, such as a real estate sale, or cover broader applications.
A Power of Attorney may give permanent or temporary authority and be invoked immediately or be activated by a future event, such as mental or physical disability. The latter is known as a “springing” Power of Attorney. Powers of Attorney may be rescinded, but most states will require written notice of revocation to the named individual or entity.
Some Powers of Attorney are nondurable for the sake of convenience, especially in the case of a single transaction, such as a property sale. Your agent may conduct the sale of a boat or a home described in the POA document. If you are traveling abroad or know you cannot transact this business, a nondurable power of attorney can be greatly beneficial. Once the time period or transaction is complete, the nondurable power of attorney terminates.
A general power of attorney permits the agent to deal with any matters on your behalf that state law allows. Under such an agreement, the proxy may sign checks, handle bank accounts, sell property, manage assets, and file taxes when you are unable. This POA has a wide latitude of authority. Therefore, there needs to be coordination between you and your agent to ensure your best interests are always represented.
The better-known Powers of Attorney are durable and take effect upon incapacitation. The word “durable” means the powers will remain intact even when you can no longer manage your affairs. There are two types of Durable Powers of Attorney. One handles financial matters, and the other manages medical affairs, often called a healthcare directive.
Without these Powers of Attorney in place, a court may need to appoint individuals to act on your behalf upon your incapacitation. Depending on your state laws, these individuals are known as conservators, guardians, or committees. This type of court intervention can be expensive, time-consuming, and is a public proceeding. Most people prefer to keep their matters private by implementing powers of attorney documents in their estate plans to avoid conservatorships.
Financial Power of Attorney
This durable power of attorney permits an agent to manage your financial and business affairs, similar to a general power of attorney. When you become incapable of managing your affairs, the agent’s responsibility is to carry out your wishes to the best of their ability. If the financial power of attorney is also a beneficiary of your estate, they must act with great care to avoid misinterpretation of intent. This document is not just for seniors. An unforeseen illness or unfortunate accident can render a healthy, younger individual incapacitated and in need of financial assistance.
Healthcare Power of Attorney (HCPA)
An HCPA is also known as a healthcare proxy and permits a designated person or agent to make healthcare and medical decisions according to your specific instructions or their best understanding of your wishes. Again, consenting to an HCPA agent for medical care decisions is not only relevant to seniors. An unforeseen illness or accident can render a healthy, younger individual incapacitated, which is why an HCPA is a crucial estate planning document.
The best way to establish powers of attorney is to locate a qualified estate planning attorney. They can help you assess which power of attorney is necessary for your unique situation. They also understand the criteria for identifying the individuals or agents to represent your interests. Delegating general and limited powers to agents can create family strain during the planning stages. An estate planning attorney is familiar with the nuances of these family issues should they arise and how to move forward for all concerned. The biggest benefit of having these matters settled before incapacitation or death is allowing a family to care or grieve for their loved one instead of being bogged down in logistics. We hope you found this article helpful. If you’d like to discuss your particular situation, please don’t hesitate to reach out. Please contact our New York office or call us at 607-271-9270.