Hot Powers In Power Of Attorney – You Can Get Burned With Or Without

Hot Powers In Power Of Attorney – You Can Get Burned With Or Without

Many think if they have a statutory durable financial power of attorney in Texas that the agent can do anything he or she desires since the document gives broad powers. However, there are some additional powers beyond those listed in the statutory form that create enough danger to be called “hot powers” due to the possibility of abuse (ranging from funds can be taken by your agent to changing your estate plan). These extra powers require special consideration to be granted. The principal, who is the person signing the document, would have to put his or her initials by the additional authority granted if using a Texas statutory durable power of attorney. It should be noted that you do not have to use a statutory form in Texas.

5 Hot Powers

The 5 hot powers includes:

  1. Create, amend or revoke trusts.

There are numerous types of trusts. This power gives the agent the power to create a trust during the lifetime of the principal. Although this gives the ability to create or amend trust that is contrary to your initial intent, it is sometimes very helpful. For example, if the principal had too much income for some Medicaid programs that help pay for the cost of care at a home or in a nursing home, then a certain income trust (a qualified income trust) would need to be created. As a result, with this power, the agent may be able to create the trust so that eligibility can be obtained. However, the power could also allow the agent to name himself or herself as the sole beneficiary or someone else that you did not originally consider.

  1. Create or change rights of survivorship accounts.

This power could be abused as the agent could change the account to make himself or herself the beneficiary or otherwise change the beneficiary which would supersede what is stated in your will. Conversely, there could be a problem with the person named as a beneficiary in the will (i.e., being sued). One way to reduce risk of abuse is to limit the power to eliminate (instead of change) the right of survivorship so no one else could be named.

  1. Gifting.

If the power permits self-dealing and gifting, the agent could transfer the principal’s assets to the agent. On the other hand, sometimes the principal has a pattern of gifting for holidays or would make gifts for special occasions if he or she had mental capacity. Also, the gift-giving power is also very important in planning for means-tested public benefits. If the agent acted beyond the power given in the document, then it could be a criminal act. There are also tax consequences that should be considered when making a gift.

  1. Power to delegate or substitute agents.

The risk is that the agent may choose someone to act on behalf of the principal that the principal would not like to act on their behalf. However, sometimes agents die or become disabled or simply do not have the time to serve. The power to substitute reduces the risk of a need for guardianship if there is no agent who is willing or able to act and the principal lacks enough capacity to sign a new power of attorney.

  1. Create or change a beneficiary designation.

Similar to #2 above, this power would give the agent the right to change the beneficiary of your life insurance policy, annuity, retirement benefits, etc. which could be inconsistent with your intent. The agent could abuse this power by naming himself or herself as the beneficiary. However, what if your beneficiary became disabled or developed an addiction, etc.? This power would give the agent (assuming trustworthiness) during the disability of the principal to make changes (due to the change of circumstances to the beneficiary) the principal would have desired if the principal had mental capacity.

“Hot powers” with the wrong agent could be too hot to handle. However, such additional powers are often helpful as a result of a change in circumstances.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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