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Gift Giving Within a Power of Attorney

Gift Giving Within a Power of Attorney by Tom Sciacca

{Read in 5 minutes}  In addition to a Will, a Health Care Proxy, and a Living Will, a Power of Attorney is an important part of any estate plan.

A Power of Attorney is a document that one can sign whereby they appoint someone to make business or financial decisions on their behalf. Many people think that this is desirable as an alternative to guardianship. Rather than having a Court declare someone is incapacitated and appoint a random person to be their guardian, most people would rather pick someone they know and trust.

As I discussed in a previous article, there are many things that you can authorize your Agent to do under a Power of Attorney. One of the more specific powers is the authority to make gifts of your assets during your lifetime.

For example, if I give a Power of Attorney to my sister, she is usually authorized to do things like pay my bills and deposit funds in my bank accounts. However, if I want her to be able to write checks or otherwise make gifts of my assets during my lifetime, I need to attach a separate form called a Statutory Gift Rider whereby I:

– specifically authorize her to do this;

– state what types of gifts I want her to make and to whom; and

– if I am authorizing her to make gifts to herself, stating that it is okay to make such self-interested gifts.

Normally, people reserve gift-giving for their Wills. Most people say, “Look, during my lifetime, I would like to spend or save my assets however I so choose, and then whatever is left upon my death, I am comfortable leaving to the parties named as beneficiaries under my Will.

There are some instances, however, where a client might want to authorize an Agent to make gifts of their assets. Here are some examples:

1. I am a grandparent or a great grandparent who is paying for the education of my grandchildren or great grandchildren. This may be anything from nursery school to postgraduate education. If I lose capacity and the ability to make these gifts myself, I may want my Agent to continue to make them. Presumably, I would have continued to do so if I had not lost capacity, and this ensures continuity.

2. I have a very large Estate which will be subject to the estate tax upon my death. It may behoove me to make lifetime gifts to avoid having those assets in my Estate subject to tax. A good and well thought-out plan of lifetime giving can greatly reduce estate tax liability. If I am someone who has a taxable Estate (upwards of $5 million), I may wish to consider authorizing my Agent to make these gifts.

3. I may have one or more favorite charities to which I liberally donate every year. Again, should I lose capacity, I may wish for my Agent to continue making those gifts. This may be particularly important if I have pledged assets or made an ongoing commitment to provide for the charity, that I would want to see through in the period between any incapacity and my death.

4. Sometimes people are interested in preserving assets against their long-term care costs (also known as Medicaid planning). Doing this would involve transferring my assets either to family members or to a Trust, to shelter these assets against nursing home costs. The ability to give gifts is necessary to carry out this plan.

In my practice, I would say less than 10% of clients are interested in signing this Statutory Gift Rider. Why? Well, mostly because they don’t have the concerns that I have outlined above. Either they aren’t financing people’s education; they feel that they have made adequate bequests for favorite charities or relatives in their Wills; or they are not concerned with sheltering assets. They are focused more on ensuring that they retain complete control over their own assets. If they need long-term care, they would rather spend the assets down to ensure the highest possible quality of care.

However, if you are contemplating signing a Power of Attorney, it is a very good idea to consult with an attorney about whether or not you want to sign a Statutory Gift Rider. This is particularly true for the do-it-yourself forms. Before you fill out a Statutory Gift Rider within a Power of Attorney that you might buy online, you probably should get some legal advice about whether or not you should sign it at all.

For more information on this topic, please contact me.