3 Key Provisions in Your Financial Power of Attorney

There are several important provisions to include in your financial power of attorney, including:

1. The power to gift.
2. The power to amend an estate plan.
3. The power to prosecute and defend legal actions.

Learn about these provisions’ advantages and potential risks from living trust attorney Max Alavi.

3 Key Provisions in Your Financial Power of Attorney

The financial power of attorney is one of the most crucial estate planning tools. With this document, you can name a trusted decision-maker (known as your agent) to act in your place should you ever become incapacitated or otherwise unable to manage your financial affairs.

While the provisions in your financial power of attorney can vary, they may grant your agent the authority to buy and sell property, invest, or even manage your retirement benefits. 

Three other, slightly lesser-known provisions should be considered any time you are establishing a power of attorney. These include:

1. The power to gift.
2. The power to amend an estate plan.
3. The power to start and defend legal actions.

Let’s take a closer look at these three provisions, which can be valuable to your overall estate planning effort.

1) The Power to Gift

The gifting provision can be written to authorize your agent to make gifts of your money or other tangible assets to a person or an organization, all on your behalf. 

This estate planning provision can be useful in several ways. For example, it can help your family to navigate Medicaid and similar benefits should you become medically incapacitated. It also allows you to appoint an agent to continue tithing to your church and donating to your favorite charity, should you become unable to do so yourself. And it offers flexibility to your agent to provide financial assistance to family members who are in need.

That said, this provision should be used cautiously and only when you have an agent you fully trust to act ethically and responsibly. Agents may face the temptation to make sizable gifts to themselves or to their loved ones, potentially exploiting their authority to the detriment of their chosen beneficiaries. To avoid any disruption to your estate planning, consider appointing an independent third party to approve any gifts the agent makes; this is something your estate planning attorney can assist you with.

2) The Power to Amend an Estate Plan

Your financial power of attorney may also include a provision for your agent to make or change an estate plan. This is sensitive because it, too, invites potential exploitation by an agent who could modify your estate plan so that they gain more than you wish them to receive at the expense of your other heirs and beneficiaries. 

With that said, this provision can also be helpful, as it empowers your agent to amend an estate plan in ways you would have wanted but cannot do yourself. For example, say your estate plan calls for all your assets to go to a son or daughter, but that heir develops a substance use problem. Your agent can alter the estate planning to denote that the heir only gets their inheritance if they first seek treatment. This provision can also authorize your agent to change your estate plan based on family members divorcing, adopting, or undergoing other major life changes.

Again, you may ultimately wish to instate this provision with limitations in place. Your estate planning or living trust attorney can help.

3) The Power to Take Legal Actions

Finally, consider a provision granting your agent the authority to file a legal action, defend a legal action, or appeal on your behalf.

Why is this provision impactful? Imagine that you become medically incapacitated due to medical negligence, either from your primary care provider or the staff at an assisted living facility. With this provision, your agent can potentially begin a medical malpractice suit on your behalf. But without this provision, filing such an action might be much more fraught.

Discuss These Provisions with an Estate Planning Attorney

All three of these provisions have the potential for damage and exploitation. They also have the potential to bolster your estate planning or living trust efforts. To learn more, speak with a living trust attorney directly. If you live in the Orange County and Los Angeles area, reach out to schedule an appointment with the noted estate planning attorney Max Alavi.