One of the cornerstones of a comprehensive estate plan is a durable financial power of attorney. Whether you are a multi-millionaire, a twenty something just getting started in your adult life, or an elderly person trying to qualify for Medicaid long term care, the power of attorney is a critical component to an effective estate plan.
So how does it work? The durable financial power of attorney allows you to appoint someone, your agent, to act on your behalf in financial decisions. The financial power of attorney is only valid during lifetime and ceases to have any effect upon your death. These documents often come into effect immediately upon signing.
You may be thinking, why do I need that? I am married, all of my assets are jointly held and my spouse can access anything if they need to. First of all, if something happens to your spouse, then what? Second, there are likely many other assets or accounts that are still in your name alone. Much of this country’s wealth is increasingly concentrated in tax deferred retirement plans such as 401ks and IRAs. These types of accounts cannot be held jointly. Because of this restriction, and because very often these are major assets, it is crucial that you appoint someone to be able to step into your shoes and make any decisions necessary with regards to these accounts.
One common question I get is: “Does this become effective immediately?” My answer is that I believe it should. A common objection to that recommendation is that clients often do not want someone to have immediate access to these accounts out of a fear of misappropriation of funds or fraud. My response to that objection is that if you do not trust someone while you are competent, why would you trust them when you are incapacitated and unable to stop them if they are acting in breach of their fiduciary duty to you? As such, one of the most important aspects of the power of attorney is selecting someone that you are comfortable with making important financial decisions for you on your behalf, especially during any incapacity.
It is also important to ensure that your power of attorney grants your agent the powers that they need to be an effective fiduciary and to be able to accomplish your goals. One often over looked power is the gifting power. The gifting power is a potent tool for both Medicaid and tax planning alike. By allowing your agent to gift your assets, your agent can have a dramatic effect on helping you to qualify for Medicaid, or to reduce your estate for estate tax purposes.
It is critical to have your power of attorney drafted with the most flexibility and protection for you. Make an appointment with your estate planning or elder law attorney to discuss your existing documents, or to have documents drafted that meet your needs.
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