I Just Signed a Durable Power of Attorney with the Power to Make Gifts. What Could Possibly Go Wrong?
A power of attorney is a document by which you appoint someone to act as your agent for specific or more general purposes. All powers of attorney terminate on revocation, death, a specified date or the happening of a specified event. Normally, a power of attorney is effective only while you are legally competent. However, a “durable” power of attorney (a “DPOA”) continues despite incompetency. That makes it handy for estate planning purposes, and for that reason and because it allow someone else to take care of your important business when you are unavailable or incapacitated, estate planners often recommend that you execute them.
A DPOA may give the agent authority to make gifts with your assets. That authority can be extremely helpful for estate planning but it is easily abused. If you grant your agent broader gifting authority than is necessary, you create opportunities for misunderstandings, for self-dealing or other abuses. Agents are often sued for misappropriating property for their own benefit.
In Massachusetts, agents may only perform actions specified in a power of attorney and no “extra” powers are assumed by courts. It is critically important that powers of attorney be carefully crafted only to carry out your intentions. If you want your agent to have the flexibility to make some gifts, but not the ability to fully deplete your estate, then place restrictions on the power to gift. For example, limit amounts or potential recipients.
Some district attorneys’ offices have warned the public that overly-broad DPOAs create the risk of harm and loss to principals. Losses that are caused by overly broad provisions may not be recoverable, because the document authorizes them, whether intentionally or carelessly.
Because every person’s needs are different, it is very important that each DPOA be thoughtfully drafted with careful attention to your needs and concerns. One-size-fits-all documents that are taken from internet sites or drafted without proper legal advice can lead to disastrous consequences, both for family harmony and for your financial well-being. If your DPOA is used in a way that you do not intend, you will need legal help to stop the undesirable conduct and recover property. If you have concerns about a DPOA, or if you are considering the use of a DPOA in your own planning, call a member of our Trusts and Estates Department for professional help and advice.