Power of Attorney – early inheritance or avoid probate
- Explaining default limits that the law imposes on the use of a power of attorney
- Providing two circumstances when it would be helpful to remove those limits with appropriate clauses within the power of attorney document, i.e. for early inheritance and avoiding probate
Jordan (not his real name) consulted with me about the use of a power of attorney that appoints him as attorney for his father, Peter.
I’ll start with a quick lingo lesson. Folks commonly refer to the appointed attorney as a “power of attorney”, which is technically incorrect. Jordan is not his father’s “power of attorney”. A power of attorney is a document. By signing that document, Peter (the grantor) appointed his son as his attorney.
Adding confusion, the word “attorney” is unfortunate because most folks think of an attorney as being a lawyer.
Peter has been very generous to Jordan and his sister Samantha. On three occasions, after selling a piece of property or liquidating some investments, Peter has split the proceeds between his two adult children.
Demetia has taken Peter’s cognitive capacity. Unable to continue living independently, Peter was moved into a care facility. Jordan used the power of attorney to list and sell Peter’s home. Jordan’s questions had to do with the proceeds from that sale.
Jordan’s question: Can he lawfully split the proceeds from the sale of his father’s house between himself and his sister, the same as his father would have done had he not lost his cognitive capacity?
To answer that question, I had to review the power of attorney document. Our laws put some very reasonable default limits on attorneys. Those default limits can be removed by clauses contained within the power of attorney document.
One default limit: the total value of all gifts granted through a power of attorney in a year must not exceed the lesser of $5,000.00 and 10% of the grantor’s taxable income in the previous year.
Another default limit: the attorney cannot use the power of attorney to give themselves a gift.
I think we’d all agree that these are incredibly reasonable default limits! We don’t want appointed attorneys using their power to give themselves, or others, significant amounts of the grantor’s money!
But if he had capacity, Peter would have wanted his children to have the proceeds from the sale of his home rather than waiting to receive it as part of their inheritance. Unfortunately, his power of attorney was not drafted to remove those default protections.
My regretful advice to Jordan was that it would not be lawful for him to split those proceeds as his father would have wished.
These default limits come up more often when a parent’s death has become imminent. The expense and delay of probate can be avoided if assets are transferred out of a parent’s name before their death.
But those steps are unlawful unless appropriate clauses are included within the power of attorney.
I recommend consulting with a lawyer to review the level of authority you have granted in your power of attorney to ensure that your attorney is as armed as you want them to be to act according to your wishes.
I am not currently accepting new incapacity planning clients, preferring to focus on the estate administration (probate) aspect of my practice. If you wish, I will refer you to excellent lawyers who do provide these services.
