Everlasting Power of Attorney: Is Your “Sizzling” Sufficient? | Cranfill Sumner & Hartzog LLP
Many states, including North Carolina, allow individuals to complete certain legal documents called a Powers Attorney. In a power of attorney, a person known as the principal can appoint other trustworthy persons, so-called agents, to make financial transactions and decisions for the principal. The purpose of a proxy is to have an agent appointed and legally entitled to access and manage the principal’s property on behalf of the principal. Powers of attorney are heavily dependent when a client is no longer able to manage his affairs or finances due to his age or declining health. When a principal is no longer able to manage its assets, an agent’s ability to handle the principal’s assets is limited only to the specific legal permissions granted under the power of attorney.
However, not all powers are created equal. The powers of attorney can vary in terms of scope and complexity. The language used in a Power of Attorney can affect whether an agent can use or access the principal’s assets in order to maximize the protection of the assets. The authorizations granted as part of a power of attorney can often ensure that the client’s estate plans are adhered to, even if the client requires long-term care.
Some powers of attorney are very simple and may only allow an agent to access and manage money, accounts, or property. With these basic powers, an agent can pay bills, make investments, and even sell real estate if necessary. With a simplified power of attorney, an agent can only be obliged to use the client’s money for the client’s needs. The North Carolina legal power of attorney, which many people still use today, is an example of a simplified power of attorney that gives an agent the most basic permissions to manage the principal’s property or finances. A short form of power of attorney can avoid the need for court-appointed guardianship and allow an agent to access the principal’s assets and use them for the principal’s needs. In most cases, however, it is not possible to briefly authorize a proxy to require an agent to protect assets or make critical decisions about financial, legal, or long-term care planning for the client. In such circumstances, a short form of the power of attorney can adversely affect not only the client but also the spouse of a client, especially if the client shares ownership of certain assets.
Some powers of attorney can also give an agent extraordinary powers that provide substantial asset protection or more complex planning. These powers are commonly referred to as “hot powers” and must be specifically identified on a power of attorney as the agent’s permission to conduct such transactions. These hot powers are known as they give an agent considerable authority to create or change the principal’s financial and estate objectives. The main powers that might be considered in a power of attorney include the following:
- The power to create, change, revoke or terminate a trust during the lifetime of the client. Trusts can be effective tools to avoid the public inheritance process. The hassle and cost of inheritance can be avoided with a confidence. Trusts can also be effective tools for providing for members of mixed families, real estate in other states, or minors or disabled beneficiaries. With the appropriate restrictions, an agent under a power of attorney can meet the client’s estate planning and asset protection goals by creating and financing certain types of trusts for the client.
- The power to Create or change survival rights. This powerful tool enables the agent to maximize the principal’s estate planning goals for assets that range from real estate to bank to investment accounts. Significantly, this hot energy can protect assets for long-term care planning.
- The power to create or change a beneficiary name. With the right constraints, this hot power could allow an agent to update beneficiary names for certain assets in turn to meet estate planning and asset protection goals.
The most popular hot power is the power to give away money or property. This power is often used to advance a gift plan or to protect money or property from being entirely spent on long-term care. A hot force can be beneficial to a spouse who stays at home when the other spouse enters a care facility. The power to give can be limited or unlimited to a dollar amount. The power to give gifts can also be restricted to certain recipients, such as a spouse or family member.
Executing a power of attorney with these hot powers requires careful decision-making and discussion with an attorney to determine whether hot powers are appropriate for each person’s particular circumstances. Many hot forces come in handy when a person is concerned about protecting assets for long-term care planning. However, very consideration needs to be given to who will be given the powers and under what conditions. An agent needs to understand the responsibilities owed to the client by using the hot powers.
It is crucial that a power of attorney – with or without a hot power of attorney – is not a document that a client should download from the Internet in order to execute it himself. Aside from concerns that the document may not be properly executed or recorded, the powers of attorney found online barely provide the specific powers needed to plan asset protection. Online forms are often not state-specific. A lawyer can and should advise a client on whether Hot Powers are appropriate for the client’s needs. Additionally, the attorney should inform the client whether the Agent or Hot Powers should have the necessary restrictions that are appropriate for the client’s needs.
In addition, a client can only execute a power of attorney – with or without hot powers – if the client has the cognitive ability to understand what the document can do. Many families looking to protect family assets may find it too late that an existing power of attorney lacks the specific powers necessary for meaningful planning. At the same time, a client’s cognitive decline would prevent the client from executing a new power of attorney with hot powers. For this reason, it is beneficial to meet with a senior lawyer or estate planning attorney at least once a year to review existing documents, discuss legislative changes, and discuss plans for an agent’s responsibilities.
Adding an inexpensive, permanent power of attorney containing hot documents to estate documents while a person is still healthy to sign such documents can present critical opportunities for long-term care and financial planning.