What Powers Should POAs Include?
When it comes to estate planning, one of the most powerful and practical tools at your disposal is the Power of Attorney (POA). A well-drafted POA can make sure that your affairs are managed smoothly if you become incapacitated or simply unavailable. But not all POAs are created equal, and not all of them include the right powers.
The Law Office of Rodney Gould serves clients in Los Angeles, California, and one of the most common concerns the firm hears from clients is: “What powers should I give my agent?”
Keep reading to learn what a POA is, what the different types are, and to explore the essential powers you may want to include, along with considerations for how and when to grant them.
What Is a Power of Attorney?
A Power of Attorney is a legal document that gives someone else the authority to act on your behalf in legal, financial, or medical matters. The person granting the power is called the “principal.” POAs are essential tools in estate planning because they allow you to choose someone to manage your affairs if you’re unable to do so due to illness, injury, or absence.
There are two primary categories of POAs:
Financial (or General) Power of Attorney: Covers financial and legal decision-making.
Medical (or Healthcare) Power of Attorney: Covers medical and end-of-life decisions.
The primary focus here will be financial/general POAs. If you have questions that are not answered here or would like assistance with estate planning, reach out to The Law Office of Rodney Gould, and he’ll be happy to help you work through the estate planning process, including setting up a POA.
Types of POAs and When They Apply
Before we look at what powers to include, let’s consider the different types of POAs you might encounter. There are three different types of POAs, each with a distinct role and limitations. Understanding the differences is important as you move forward and make decisions during the estate planning process.
Durable POA
A Durable Power of Attorney is designed to remain in effect even if you, the principal, become mentally or physically incapacitated. This feature makes it an essential component of a comprehensive estate plan because it makes sure that someone you trust can continue managing your financial or legal affairs without interruption.
Without a durable POA, your family might be forced to seek a court-appointed guardianship or conservatorship, which can be time-consuming, stressful, and expensive. By executing a durable POA in advance, you can avoid that outcome and maintain control over who handles your matters during a crisis.
Springing POA
A Springing Power of Attorney becomes effective only after a specific event occurs, most commonly, your incapacity as certified by a physician or two. This approach can provide a sense of security because the agent cannot act unless that triggering event is formally documented by a medical professional.
However, this requirement can also lead to delays in urgent situations, as doctors may be hesitant to provide written declarations, or family members may disagree on your condition. While a springing POA may appeal to those concerned about granting authority prematurely, it often adds unnecessary complications when swift action is needed.
Limited POA
A Limited Power of Attorney, also known as a special POA, grants your agent authority to act on your behalf in a specific context or for a limited time frame. This might include authorizing someone to sign documents at a real estate closing while you’re traveling or to handle a single banking transaction.
Limited POAs are useful for narrowly defined tasks and are often used in business or travel scenarios where you need temporary help. They offer flexibility while keeping your broader affairs outside the agent’s control, making them ideal for situations that don’t require ongoing management or oversight.
What Powers Should Be Included in a POA?
Now, let’s explore the powers that should be considered for inclusion in a durable general POA. Keep in mind that the exact language and scope will depend on your state’s laws and your personal preferences. Speaking with The Law Office of Rodney Gould can help you understand the laws in California. Here are the essential categories of powers you may want to include:
Banking and Financial Transactions
This is one of the most fundamental powers included in a POA. It enables your agent to access your checking and savings accounts, manage transactions, and oversee your financial life. Your agent can pay your bills, deposit checks, transfer funds, and make withdrawals on your behalf, as well as manage your investments based on your financial goals.
Real Estate Transactions
Real estate powers allow your agent to handle your property interests with flexibility and legal authority. This includes the ability to buy or sell real estate, lease properties, refinance or take out a mortgage, and handle closing documents. They can also take care of property-related expenses such as paying property taxes or managing utilities and maintenance.
If you own a rental property, your agent can collect rent, deal with tenants, and perform landlord duties. Importantly, if you want to place restrictions on certain transactions, such as selling your primary residence, you must clearly state those limits in the POA, as some states require specific language for such authority to be valid.
Tax Matters
Including tax powers in your POA makes sure that your agent can take care of essential tax-related responsibilities. This authority allows your agent to prepare, sign, and file both state and federal tax returns on your behalf. Your agent may also communicate with the IRS or state tax departments regarding your tax status or outstanding obligations.
They can make estimated payments, handle audits, or respond to inquiries. Although the IRS may require a separate form (such as Form 2848) for full representation, having tax authority in your general POA provides a foundation for your agent to step in when necessary and keep your filings current.
Retirement Accounts
Retirement account powers allow your agent to manage your IRAs, 401(k)s, pensions, and other tax-deferred accounts. This can include checking balances, reallocating investments, or initiating distributions, such as Required Minimum Distributions (RMDs), once you reach the appropriate age.
These distributions are often time-sensitive and have tax implications, so it's essential that your agent has the authority to make them on your behalf. Because retirement accounts are governed by federal tax laws, this authority must be explicitly stated in your POA; otherwise, your agent may be blocked from taking action, leading to penalties or tax issues.
Gifts and Transfers
Your POA can be drafted to authorize your agent to make gifts or financial transfers on your behalf. This might include giving money to family members, making charitable donations, or transferring assets into a trust. This authority is especially useful for Medicaid planning or estate tax strategies that rely on shifting assets out of your estate.
However, gifting powers can be easily abused, so it’s wise to set limits. You might, for example, allow gifts only up to the annual IRS exclusion amount or for specific purposes like tuition or medical expenses. Properly tailored, this authority can help preserve your estate while protecting your intent.
Trust Transactions
If you have a revocable living trust, it’s often beneficial to authorize your agent to interact with it under the POA. This includes the ability to fund the trust by transferring assets into it, manage trust-held assets, and, in some cases, even amend or revoke the trust, if that aligns with your estate plan and state law permits it.
These powers must be clearly defined, as trust law is separate from general property law, and not all trusts allow for POA-based management. Allowing your agent to maintain your trust can prevent delays in asset control and protect your overall estate plan from disruption. Speak with your estate planning attorney to understand whether this should be allowed in your case.
Business Interests
For business owners, granting your agent authority over your business affairs is critical to keeping operations running smoothly in your absence. Your agent can be empowered to manage daily operations, sign checks or contracts, oversee payroll, and make important financial decisions. This makes sure your business continues to function without legal delays.
Legal Proceedings and Government Benefits
Your agent should also have the authority to engage in legal actions on your behalf. This includes the ability to file lawsuits, respond to legal claims, settle disputes, and hire attorneys if needed. Beyond the courtroom, your agent can also handle applications for and management of government benefits such as Social Security, Medicare, Medicaid, and veterans’ benefits.
Contact an Estate Planning Attorney Today
A Power of Attorney is one of the most critical documents in your estate plan. It can empower someone you trust to handle your affairs with clarity, efficiency, and respect for your wishes. At The Law Office of Rodney Gould, Mr. Gould serves clients in Los Angeles, California, as well as Sherman Oaks, Studio City, West Hollywood, and Beverly Hills. To begin your estate planning journey, including drafting a POA, contact his office today.