Your Estate Plan: Ideas You Can Really Use

The Use of Powers of Attorneys as Part of Your Estate Plan

By Earl H. Cohen, Attorney at Law

Welcome to the next in a series of articles, Your Estate Plan, a monthly series of articles on estate planning and planned charitable giving. This series of articles will present practical information and ideas you can really use, regardless of your age or the size of your estate, in planning and keeping your estate and charitable giving plans up to date.

Last month we discussed the use of wills as part of your estate plan. This month we'll discuss another one of our top estate planning tools: powers of attorney.

Powers of attorney, along with wills and living trusts, can, and usually will, serve as the core of your estate plan. Properly drawn, a power of attorney will allow for the administration of your affairs during times of absence or disability by your attorney in fact. An attorney in fact is not the same as an attorney at law. An attorney in fact can be anyone you trust to appoint to manage your affairs on your behalf. The person appointed serves in a fiduciary capacity, that is, they are required to manage your affairs solely with a view towards what is best for you. Used with a living trust, a power of attorney can usually eliminate the need for a conservatorship, a court proceeding in which a conservator is appointed to manage or oversee your financial affairs.

In Minnesota, a properly planned estate will include two powers of attorney: a statutory short form power of attorney, the form that financial institutions commonly expect to see, and the general durable power of attorney, providing broader powers including the specific powers regarding gifting, including charitable gifting, that the Internal Revenue Service requires.

Powers of attorney terminate at death and unless the power is "durable," at the time of the onset of incapacity. For a power of attorney to be "durable," the document must merely state that the power shall continue to be effective in the event of incapacity.

We are often asked:

• "If I have a power of attorney does my estate have to go through probate?" The presence of a power of attorney does not eliminate the probate of the estate of a decedent. The power of attorney terminates at the time of death. Assets held in your own name at the time of death must generally be administered through probate.
• "What happens if I do not have a power of attorney?" Without a power of attorney no one is authorized to manage your affairs while you absent or incapacitated. This can create significant inconveniences and unnecessary costs.
• "What happens if I do not have a durable power of attorney?" If your power of attorney is not durable your attorney will not be able to exercise the power in the event of your incapacity.
• "I have a power of attorney. Do I still need a health care directive?" Properly drawn, a durable power of attorney may provide for the management of your health care. However, if the document needs to be referred to the hospital or clinic's legal department to determine if it is valid for advance directive purposes, it would be better to also have a health care directive in a the form recognized by health care providers and the state.
• "If I have a power of attorney and I am incapacitated, can my attorney in fact still carry out my charitable wishes while I'm alive?" Yes, if you have a durable power of attorney and you have included specific language allowing the completion or continuation of a gifting program or intentions. Without that language, the IRS may disallow any charitable deduction.

While a full discussion of the issues and techniques surrounding the use of powers of attorney is beyond the scope of this article, feel free to contact us for easy to understand information.

Watch for next month's article in which we will discuss The Top 10 Estate Planning Mistakes.

For further information on how these and other estate planning techniques may apply to your situation or your charitable planned giving strategy, feel free to call me at 612-339-4295.