Important Decisions Regarding a Power of Attorney

By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.

{5:29 minutes to read} In the practice of elder law, we often conclude that a power of attorney is one of the most important documents for a client to have. A power of attorney (POA) authorizes an appointed person or persons to make decisions on behalf of the individual should such individual become incapacitated. The person who creates the POA is referred to as the principal, and the person appointed to act on the principal's behalf is the agent. Depending on how the POA is drafted, an agent can be empowered to do a wide variety of tasks. These can range from the most mundane responsibilities, such as paying bills and getting bank balance information, to far more extensive and sophisticated planning decisions on behalf of the principal.

There are several important decisions that must be made by the individual appointing a power of attorney. The following is a list of things to consider:

• Initial Agent - Firstly, the principal must decide who should be appointed as agent. The person must be someone the principal trusts implicitly. Further, the agent should be organized, responsible and somewhat financially savvy. Finally, the agent should be someone who has sufficient time to handle all the principal's financial matters should he become incapacitated.

• Number of Agents - The principal must also decide how many agents to appoint. More than one agent can be appointed on a POA. If multiple agents are appointed, the agents can share the responsibilities and divvy up different tasks. If this is the main purpose, then the principal, when signing the form, should make sure to indicate that each agent can act separately. Clearly, the agents should get along with one another; if they do not, this might prevent them from acting in an efficient and effective way and in the principal's best interests. Sometimes, a principal may want to ensure that there is a check and balance system in place. In such case, appointing two agents who must act together would be the proper way to go. Appointing more than two people as agents who must act together is cumbersome, and often financial institutions are unwilling to honor this arrangement.

• Successor Agents - After the initial agent or agents are appointed, the principal also has the ability to appoint a successor agent. Such person can only serve as agent if the people named initially are not able to act. The POA form should be very specific as to when the successor agent can step in (i.e., death or incapacity of first agent) and what proof is required.

• Springing or Durable - The notion behind the POA is that it will be utilized only when the principal becomes incapacitated. A "durable" POA implies that the POA will survive the incapacity of the principal; however, the POA does, in fact, go into effect immediately. In most instances, the principal trusts the appointed agent(s) implicitly and feels comfortable that the form will only be used in an emergency, when he is no longer able to sign or make decisions. If the principal does not feel this comfort level, there is an argument to be made that the specific person should not be appointed as agent at all because trust is the foundation of this entire arrangement. Nonetheless, for those people who are uncomfortable with a durable power of attorney, language can be added to the "modifications" section of the POA, making the POA a "springing" form rather than durable. This would mean that the form can only be used once it is verified that the principal is incapacitated. This language may give the principal a certain comfort level that the form will only be used upon his incapacity. However, a springing POA typically requires that the agent provide proof of the incapacity - often in the form of a letter from a doctor. This may be overwhelming for an agent who is trying to handle the principal's affairs and may also cause an unwanted delay in access to funds that may be desperately needed.

• Gifting - The current New York statutory power of attorney does not allow the agent to make any gifts on behalf of the principal. If the principal wishes to give the agent that power, he must sign a separate statutory gift rider. One of the reasons that the gift giving power is now on a separate form is because the lawmakers wanted the principal to give this power serious consideration. The gifting power was part of the standard form prior to 2009. While this often allowed for fluid planning, it was also a trap for the unwary, and individuals were unaware of how much power they were actually giving to the agent. The principal now has the ability to decide if the agent should have the right to make gifts and transfer assets out of his name. Oftentimes, this power is a necessity at a time of illness or medical emergency, when asset protection is necessary. Signing the gift rider enables the agent to engage in a comprehensive Medicaid plan should the need arise.

• Creating Trusts - This provision relates back to the gifting provision. A gift does not have to be made through an outright transfer. A trust is a vehicle that can provide for extensive flexibility and tax savings while simultaneously allowing for asset protection. The principal should strongly consider adding such a provision allowing for the agent to enter into trust agreements as well as to modify, revoke or amend such trusts.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.