Financial POAs: 10 key provisions that are commonly overlooked

We all need several estate-planning documents. One of the essential few is a financial power of attorney (also known as a durable general power of attorney). This document empowers a trusted agent to step in and handle our financial affairs if we become disabled, incapacitated, or incompetent. Without it, your family would need to file a legal action seeking approval from the court to act as your guardian or conservator—a slow and expensive process at a time when speed is important.

But while having a financial POA can be invaluable, it’s only as good as the words contained within it. Unfortunately, many standard POAs are not comprehensive, leading them to omit useful provisions. Here’s 10 of the more commonly overlooked ones.

First, if you are incapacitated for any length of time, it’s likely that your agent will need to interact with the tax man, either in the form of signing a tax return or something more involved. To make sure that your agent will be able to do that, your financial POA should have a clause empowering your agent to handle tax matters and speak to tax authorities on your behalf.

Second, many people have the lion’s share of their assets in investment or retirement accounts. Because of the money at stake, account administrators and retirement plan custodians are understandably cautious. They’ll want to see specific authorization before giving your agent access. So, your financial POA should spell out what your agent can see and do.

Third, an important tax strategy for wealthier individuals is to make regular gifts to heirs. If done right, these gifts reduce your taxable estate when you pass away, meaning that more of your money goes to heirs and less of it goes to the government. So, if you are considering a gift-giving tax strategy, your financial POA should say that your agent can start or continue giving gifts consistent with that strategy.

Fourth, if you are incapacitated for an extended period, it can be helpful to give your agent the power to create or amend trusts for your benefit. Allowing your agent this authority maximizes flexibility when executing your estate plan. And it can come in handy if you don’t have a will because while you can give your agent the authority to create or change a trust, you can’t give them the power to make a will for you.

Fifth, more and more of us will need long-term care (extended assistance with medical needs or daily activities, whether provided at home, via community services, or at a nursing facility). It’s important to authorize your agent to make decisions about where and what kind of care you’ll receive.

Sixth, as touched on a moment ago, many of us will need extended care. Frequently a family member will provide that care at your home or theirs. They can do so for free, of course. But often it’s better to pay them. If so, you will want your agent to have the authority to both hire and pay them.

Seventh, as we get older, poorer, or both, we qualify for an increasing number of government benefits. But sometimes government agencies can be persnickety about whether an agent can do so on your behalf. To sidestep the problem, make sure that your financial POA grants your agent the power to apply for public benefits on your behalf.

Eighth, a financial POA involves your agent providing a service, whether it’s managing your finances, speaking with the government, hiring attorneys and accountants, and so on. In a real sense, it’s a job. But frequently the agent is a family member. And sometimes that means the expectation is that the agent will donate their time and effort. Whether that’s the case or not should be discussed in advance and spelled out in your POA.

Ninth, like most legal documents, it’s useful to explain how it will come to an end. So, a good financial POA should describe the mechanics for its termination.

Such a provision is especially helpful if you have a “springing” POA, which is a POA that restricts your agent’s authority to times when you are incapacitated. For this kind of POA, it’s particularly important to define when you’ve become incapacitated and, similarly, when your capacity has been restored. A common practice is to require a doctor’s note or, sometimes, the opinion of two doctors.

Finally, your financial POA needs a last-in-time clause to address what happens if you have a preexisting POA. The clause should say that any POA executed prior to the current one is void. This eliminates the issue of how to handle dueling POAs, especially if an earlier POA authorizes an agent to do something and a later POA is silent on the same topic.

This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.