Understanding Financial Powers of Attorney ("General Powers of Attorney")
Financial Powers of Attorney ("POAs") are increasingly important, since many persons who live long enough will need assistance from others to manage finances. The powers in financial POAs are intentionally broad because there many situations where child may need to transfer a parent's house, gift assets, and/or apply for government benefits. Also, these powers can be limited, but it is more ideal to not limit them, if possible.
Because of the broad nature of these powers, it is important that you trust your Agent. As a result of broad powers included in Financial POA, there is the opportunity for abuse by your Agent. Even though POA documents requires Agent sign and promise to use powers for the benefit of the Principal, they can still “take the money and run.” If there is even a small doubt in your mind that child would misuse POA or use powers for his own benefit (to the detriment of siblings), it is better not to sign the documents.
Here are some solutions for potential future conflict when it comes to financial Powers of Attorney:
Multiple Agents: though not preferred, require they act in conjunction and do not have independent authority to act;
Springing Powers: though not preferred, at least ensures Agent cannot act until you are incapacitated;
Family conference/planning meetings: best solution – get children together with a knowledgeable attorney so that you can outline your wishes and plan, including discussion of what should take place in various planning scenarios (i.e., if you entered a nursing home)
Often, it is better to visit an attorney alone to draft POAs to your sole preference, rather then bring in children to explain and discuss future plans/possibilities. However, afterward, discussing powers of attorney (and how you expect them to be used) with a child can be very helpful.
Previously, we have viewed estate planning as private affair, but including multiple family members increases likelihood that your wishes will be followed. Communication, and ensuring parent and children are on the same page, helps set expectations for children (since you may not be able to explain your desires to them later).
Most children are disinclined to violate parent's wishes, so as long as children understand exactly what parent's wishes are, future transitions are usually easier. Decisions that Agent must make in the future (such as Medicaid planning, if parent requires nursing home care) are usually made under very difficult circumstances that have tendency to bring up older tensions between children. Family conference can resolve some of these future conflicts before the point of incapacity by parent.
Regarding Financial POAs, remember:
(1) A Financial POA is effective the moment you sign it (unless springing);
(2) A Financial POA is revocable at any time by Principal;
(3) A Financial POA usually gives your Agent all of the powers you have over all of your property, unless limited (thus, Agent's powers are concurrent and co-equal to yours, in many ways);
(4) One Agent is usually best (since multiple people being able to act on your behalf can lead to trouble); and
(5) Communication during life increases likelihood of success.