A Power of Attorney is one of the most commonly used of all legal documents. A Power of Attorney (POA) is also frequently used as an estate planning tool. When properly drafted and used as intended, a POA can be an excellent addition to your estate plan. Given the potential authority you give to someone when you execute a POA, however, it is imperative that you have a clear understanding of all the terms in any POA you execute. As a Los Angeles estate planning attorney at Collins Law Firm explains, an Agent’s ability to make gifts is one term within a Power of Attorney that frequently leads to litigation.
What Is a Power of Attorney?
A power of attorney, or POA, is a legal document that allows the creator (referred to as the “Principal”) to grant another person (the “Agent”) the legal authority to act on his/her behalf. The type and extent of the legal authority granted to an Agent depend on the type of POA executed.
General vs. Limited Power of Attorney
A general POA grants an Agent almost unlimited power to act on behalf of the Principal. This means that an Agent may be able to do things such as withdraw funds from a Principal’s financial accounts, sell property and assets owned by the Principal, and even enter into contracts in the name of the Principal while the POA is in effect.
A limited POA only grants an Agent the limited, and specific, authority enumerated in the POA. For example, you might grant an Agent the specific power of attorney to act on your behalf during a contract negotiation or in order to sell your vehicle while you are away. Parents of minor children frequently make use of a limited POA to grant a caregiver the authority to consent to medical care for a child, should it be needed, during the limited time that the parents are out of town.
The Durable Power of Attorney
A traditional power of attorney automatically terminates upon the death or incapacity of the Principal. The problem with that is that the primary purpose of executing a POA is often to grant a loved one the authority to act for you in the event of your incapacity. If, however, the POA automatically terminates upon the incapacity of the Principal, executing the POA will not fulfill that purpose. With that in mind, the concept of a durable power of attorney began to evolve. A “durable” POA is simply a power of attorney that survives the incapacity of the Principal. Both a general and a limited POA can be made durable.
Can Your Agent Make Gifts?
One of the many reasons to stay away from generic legal forms is that they frequently lead to litigation. A generic durable general POA form, for example, typically includes language that allows the Agent to “sell, convey or transfer” assets owned by the Principal. These forms are frequently silent on the issue of gifts. If the Principal is competent at the time the Agent makes a gift, that gift may be upheld. If the Principal is incompetent, however, gifts made by the Agent will likely not be upheld should the gift be litigated. All too often, however, the Principal intended the Agent to be able to make gifts – particularly if the Principal becomes incapacitated. For example, you might execute a durable general POA naming your spouse or adult child as your Agent with the intent to give your Agent the ability to transfer your property into his/her name if you become incapacitated. The law, however, doesn’t like to infer authority. Therefore, in the absence of an express, and well-written, gift clause in your POA, any gift your Agent makes could result in litigation – and most courts will view that gift with suspicion.
Contact Collins Law Group
For more information, please download our FREE estate planning worksheet. If you have additional questions about how gifs are handled in a Power of attorney, consult with a Los Angeles estate planning attorney. Contact the Collins Law Group by calling (310) 677-9787 to register for one of our FREE estate planning workshops.