A financial power of attorney can be a valuable planning tool. The most common type is the durable power of attorney, which allows someone (the agent) to act on the behalf of another person (the principal) even if the person becomes mentally incompetent or otherwise incapacitated. It authorizes the agent to manage the principal’s investments, pay bills, file tax returns and handle other financial matters if the principal is unable to do so as a result of illness, injury, advancing age or other circumstances.

However, a disadvantage of a power of attorney is that it may be susceptible to abuse by scam artists, dishonest caretakers or greedy relatives.

Watch out for your loved ones

A broadly written power of attorney gives an agent unfettered access to the principal’s bank and brokerage accounts, real estate, and other assets. In the right hands, this can be a huge help in managing a person’s financial affairs when the person isn’t able to do so him- or herself. But in the wrong hands, it provides an ample opportunity for financial harm.

Many people believe that, once an agent has been given a power of attorney, there’s little that can be done to stop the agent from misappropriating money or property. Fortunately, that’s not the case.

If you suspect that an elderly family member is a victim of financial abuse by the holder of a power of attorney, contact an attorney as soon as possible. An agent has a fiduciary duty to the principal, requiring him or her to act with the utmost good faith and loyalty when acting on the principal’s behalf. So your relative may be able to sue the agent for breach of fiduciary duty and obtain injunctive relief, damages (including punitive damages) and attorneys’ fees.

Take steps to prevent abuse

If you or a family member plans to execute a power of attorney, there are steps you can take to minimize the risk of abuse:

  • Make sure the agent is someone you know and trust.
  • Consider using a “springing” power of attorney, which doesn’t take effect until certain conditions are met, such as a physician’s certification that the principal has become incapacitated.
  • Use a “special” or “limited” power of attorney that details the agent’s specific powers. (The drawback of this approach is that it limits the agent’s ability to deal with unanticipated circumstances.)
  • Appoint a “monitor” or other third party to review transactions executed by the agent and require the monitor’s approval of transactions over a certain dollar amount.
  • Provide that the appointment of a guardian automatically revokes the power of attorney.

Some state laws contain special requirements, such as a separate rider, to authorize an agent to make large gifts or conduct other major transactions.

Act now

If you’re pursuing legal remedies against an agent, the sooner you proceed, the greater your chances of recovery. And if you wish to execute or revoke a power of attorney for yourself, you need to do so while you’re mentally competent. Contact us with questions.

© 2020 Covenant CPA

When drafting your estate plan, you and your attorney must account for what happens to your children and your assets after you die. But your plan must also spell out your wishes for making financial and medical decisions if you’re unable to make those decisions yourself. A crucial component of this plan is the power of attorney (POA).

ABCs of a POA

A POA appoints a trusted representative to make medical or financial decisions on your behalf in the event an accident or illness renders you unconscious or mentally incapacitated. Without it, your loved ones would have to petition a court for guardianship or conservatorship, a costly process that can delay urgent decisions.

POAs in action

A POA is a document under which you, as “principal,” authorize a representative to be your “agent” or “attorney-in-fact,” to act on your behalf. Typically, separate POAs are executed for health care and finances.

A health care POA authorizes your agent — often, a spouse, child or other family member — to make medical decisions on your behalf or consent to or discontinue medical treatment when you’re unable to do so. Depending on the state you live in, the document may also be known as a medical power of attorney or health care proxy. Be aware that a POA for health care is distinguishable from a “living will.”

A POA for property appoints an agent to manage your investments, pay your bills, file tax returns, continue your practice of making annual charitable and family gifts, and otherwise handle your finances, subject to limitations you establish.

To spring or not to spring

Generally, POAs come in two forms: nonspringing, or “durable” — that is, effective immediately — and springing; that is, effective on the occurrence of specified conditions. Typically, springing powers take effect when the principal becomes mentally incapacitated, comatose, or otherwise unable to act for himself or herself.

Nonspringing POAs offer several advantages. Because they’re effective immediately, they allow your agent to act on your behalf for your convenience, not just if you become incapacitated. Also, they avoid the need to make a determination that you’ve become incapacitated, which can result in delays, disputes or even litigation.

A potential disadvantage to a nonspringing POA is the concern that your agent may be tempted to abuse his or her authority or commit fraud.

Given the advantages of a nonspringing POA, and the potential delays associated with a springing POA, it’s usually preferable to use the nonspringing type and to make sure the person you name as agent is someone you trust unconditionally.

If you’re still uncomfortable handing over a POA that takes effect immediately, consider signing a nonspringing POA but have your attorney hold it and deliver it to your agent when needed. Contact us with questions.

© 2019 Covenant CPA

If your son or daughter currently is home from college on winter break, now is a good time to sit down and discuss a few estate planning documents he or she should have at this stage of life. Let’s take a closer look at four such documents:

1. Health care power of attorney. With a health care power of attorney (sometimes referred to as a “health care proxy” or “durable medical power of attorney”), your child appoints someone — probably you or his or her other parent — to make health care decisions on his or her behalf should he or she be unable to do so. A health care power of attorney should provide guidance on how to make health care decisions. Although it’s impossible to anticipate every potential scenario, the document can provide guiding principles.

2. HIPAA authorization. To accompany the health care power of attorney, Health Insurance Portability and Accountability Act (HIPAA) authorization gives health care providers the ability to share information about your child’s medical condition with you. Absent a HIPAA authorization, making health care decisions could be more difficult.

3. Financial power of attorney. A financial power of attorney appoints someone to make financial decisions or execute transactions on your child’s behalf under certain circumstances. For example, a power of attorney might authorize you to handle your child’s financial affairs while he or she is out of the country studying abroad or, in the case of a “durable” power of attorney, incapacitated.

4. Will. Although your child is still in his or her upper teens or early twenties and probably doesn’t have too many assets, he or she isn’t too young to have a will drawn up. A will is a legal document that arranges for the distribution of property after a person dies. It names an executor or personal representative who’ll be responsible for overseeing the estate as it goes through probate.

If you have questions about any of these documents, don’t hesitate to give us a call at 205-345-9898. We can help provide peace of mind that your child’s health and financial affairs will be properly handled should the unthinkable happen.

© 2018 Covenant CPA

Estate planning typically focuses on what happens to your children and your assets when you die. But it’s equally important to have a plan for making critical financial and medical decisions if you’re unable to make those decisions yourself. A crucial component of this plan is the power of attorney (POA) • specifically, a nonspringing POA.

POA defined

A POA is a document under which you, as “principal,” authorize a representative to be your “agent” or “attorney-in-fact” to act on your behalf. Typically, separate POAs are executed for health care and property.

A POA for health care authorizes your agent — often, a spouse, child or other family member — to make medical decisions on your behalf or consent to or discontinue medical treatment when you’re unable to do so.

A POA for property appoints an agent to manage your investments, pay your bills, file tax returns, continue your practice of making annual charitable and family gifts, and otherwise handle your finances, subject to limitations you establish.

Benefits of a nonspringing POA

A nonspringing or “durable” POA is effective immediately, regardless of the circumstances. Because it’s effective immediately, it allows your agent to act on your behalf for your convenience, not just when you’re incapacitated. A springing POA, on the other hand, becomes effective only when certain conditions are met.

In addition, a nonspringing POA avoids the need for a determination that you’ve become incapacitated, which can result in delays, disputes or even litigation. This allows your agents to act quickly in an emergency, making critical medical decisions or handling urgent financial matters without having to wait, for example, for one or more treating physicians to examine you and certify that you’re incapacitated.

Disadvantage of a nonspringing POA

A potential disadvantage of a nonspringing POA — and the main reason some people opt for a springing POA — is the concern that your agent may be tempted to abuse his or her authority or commit fraud. But consider this: If you don’t trust your agent enough to give him or her a POA that takes effect immediately, how does delaying its effect until you’re deemed incapacitated solve the problem? Arguably, the risk of fraud or abuse is even greater at that time because you’re unable to protect yourself.

Given the advantages of a nonspringing POA, and the potential delays associated with a springing POA, it’s usually preferable to use a nonspringing POA and to make sure the person you name as agent is someone you trust unconditionally.

If you’re still uncomfortable handing over a POA that takes effect immediately, consider signing a nonspringing POA but have your attorney or other trusted advisor hold it and deliver it to your agent when needed.

Contact us if you have questions regarding the use of POAs in your estate plan at 205-345-9898.

© 2018 Covenant CPA

Your estate plan shouldn’t be a static document. It needs to change as your life changes. Year end is the perfect time to check whether any life events have taken place in the past 12 months or so that affect your estate plan.

And the plan should be reviewed periodically anyway to ensure that it still meets your main objectives and is up to date.

When revisions might be needed

What life events might require you to update or modify estate planning documents? The following list isn’t all-inclusive by any means, but it can give you a good idea of when revisions may be needed:

  • Your marriage, divorce or remarriage,
  • The birth or adoption of a child, grandchild or great-grandchild,
  • The death of a spouse or another family member,
  • The illness or disability of you, your spouse or another family member,
  • A child or grandchild reaching the age of majority,
  • Sizable changes in the value of assets you own,
  • The sale or purchase of a principal residence or second home,
  • Your retirement or retirement of your spouse,
  • Receipt of a large gift or inheritance, and
  • Sizable changes in the value of assets you own.

It’s also important to review your estate plan when there’ve been changes in federal or state income tax or estate tax laws, such as under the Tax Cuts and Jobs Act, which was signed into law last December.

Will and powers of attorney

As part of your estate plan review, closely examine your will, powers of attorney and health care directives.

If you have minor children, your will should designate a guardian to care for them should you die prematurely, as well as make certain other provisions, such as creating trusts to benefit your children until they reach the age of majority, or perhaps even longer.

Your durable power of attorney authorizes someone to handle your financial affairs if you’re disabled or otherwise unable to act. Likewise, a medical durable power of attorney authorizes someone to handle your medical decision making if you’re disabled or unable to act. The powers of attorney expire upon your death.

Typically, these powers of attorney are coordinated with a living will and other health care directives. A living will spells out your wishes concerning life-sustaining measures in the event of a terminal illness. It says what means should be used, withheld or withdrawn.

Changes in your family or your personal circumstances might cause you to want to change beneficiaries, guardians or power of attorney agents you’ve previously named.

Revise as needed

The end of the year is a natural time to reflect on the past year and to review and revise your estate plan — especially if you’ve experienced major life changes. We can help determine if any revisions are needed. Call us today at 205-345-9898.

© 2018 Covenant CPA