In this respect, the role played by the power of attorney is under-appreciated. A carefully drafted durable power of attorney (DPA) allows the agent to act on your behalf, when you cannot act, in order to make gifts, create trusts, and fund, amend, or revoke existing trusts.
Now, let’s consider examples where such flexibility is needed and how a well-drafted durable power of attorney can be the solution.
The following are examples of some common situations where future event/circumstances may challenge your estate plan: (1) gifting assets to family as relates to Medi-Cal; (2) transferring assets into a trust in order to avoid probate; (3) amending an existing trust in order to keep it current with relevant changes in the law (including tax law); (4) creating a trust; and (5) authorizing a loan to be made to a family member.
One’s DPA can be flexibly drafted to respond to each of the above situations: (1) A power of attorney may accelerate eligibility for needs based benefits (e.g., Medi-Cal) and/or protect such assets from later estate recovery by authorizing gifts of real and personal property to family members; (2) a power of attorney may be used to avoid probate by transferring assets into one’s living trust; (3) a power of attorney may allow one’s agent to amend your revocable living trust so as to make it legally sufficient to meet changes in the law; (4) a power of attorney can be used to create a new trust (such as a living trust, a special needs trust, or an irrevocable asset protection trust); and (5) a power of attorney can be used to authorize a loan from your estate to a third party (such as a business associate or a family member).
One’s power of attorney is typically one legal instrument amongst other instruments in one’s estate planning binder.
Other legal documents, especially one’s living trust, need to examined and harmonized with the DPA.
For example, the living trust would need to recognize, as relevant, the authority stated in the power of attorney to gift trust assets, amend the trust and make loans.
Also, the DPA may not give more authority to one’s agent than is allowed by law. For example, DPA cannot be used to execute a last will and testament. The power of attorney works well with a Living Trust, but not at all with a will.
Lastly, conferring power on an agent is not without the risk that such power may be abused. To minimize such risk, it is prudent to have checks and balances in place.
Such precautions can include strict limitations on when such power can be exercised and who must also agree to the exercise of such power before action is taken.
These precautions may be variously placed in the power of attorney and in other affected legal documents (such as one’s living trust).
With precautions in place, the benefits of flexibility usually outweigh the risks.
Editor’s Note: Attorney Dennis A. Fordham is a Board Certified Specialist in Estate Planning, Trust and Probate Law. Fordham concentrates his practice in the areas of estate planning and various aspects of elder law, including Medi-Cal benefits. Mr. Fordham was qualified as a Certified Specialist in 2009 by the State Bar of California Board of Legal Specialization, and is licensed to practice law in California and New York. He earned his BA at Columbia University, his JD at the State University of New York at Buffalo, and his LLM in Taxation at New York University. His office is located on the 2nd Floor at 55 First Street, Lakeport, California and he can be reached by calling 707-263-3235 or e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it..
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