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Most people think of wills or trusts when they think of estate planning. However, powers of attorney are probably the most important estate planning documents that most people can have. A last will and testament is a good way to direct how people will distribute and receive your assets when you die, but if disability strikes you before you make a power of attorney (POA), the chaos created by your disability may devour the inheritance that you want to leave to your family or other beneficiaries. Unfortunately, many (perhaps most) POAs are so weakened by hidden and unnecessary restrictions that the POAs are almost as useless as having no POA at all.
A POA is a document that a person makes to give someone else authority to sign legal documents or take legal actions on behalf of the POA signer. For example, if a person is going on vacation or a soldier is preparing for overseas service, he or she may sign a POA to allow people to carry on personal business during his or her absence. Such business could include signing income tax returns, signing documents to sell or purchase a house, or signing loan documents to refinance a mortgage loan.
POAs are not created equally. Some POAs are specially limited, such as POAs designed by the Internal Revenue Service to allow representatives to sign income tax returns, or POAs designed by the Bureau of Motor Vehicles to allow representatives to sign vehicle titles or registration applications while the vehicle owners are unavailable. In those special cases, POA limitations restrict the POAs usefulness to specific situations as solutions to specific problems.
General POAs allow representatives to conduct all kinds of business for the people that they represent, but wealthy people or people with wealthy family members often need specially restrictions to prevent unnecessary estate taxation (for purposes of this article, a “wealthy” person’s wealth exceeds $5.45 million). In some cases, wealthy people that have POAs to help their family members can have their family members’ wealth included in their own taxable estates when they die unless the POAs contain restrictions to prevent such expensive taxation.
One of the biggest problems with POAs prepared for estate planning is that the preparers often fail to consider whether the POAs should be limited or unlimited. Most people do not have more than $5.45 million of wealth, nor do their close family members to whom they might give powers of attorney have more than $5.45 million of wealth. Those people do not need POA restrictions to avoid estate taxation because estate taxation is mathematically impossible. Sadly, many “standard form” POAs contain “boilerplate” restrictions that limit the ability of faithful and responsible representatives to help their disabled family members.
Lawyer should know when to use restrictions and when to remove them. There are two reasons why a POA may contain unnecessary estate tax-inspired restrictions: 1. a lawyer prepared the POA when the federal estate tax exemptions were much more stingy and the client did not ask the lawyer to update the powers of attorney after Congress increased the exemptions; or 2. the lawyer does maintain a high skill level and prepares POAs thoughtlessly.
The Indiana Power of Attorney Act includes the estate tax-inspired restrictions in the gift powers under Indiana Code section 30-5-5-9. An Indiana POA that references that statute with language such as, “power to act with respect to gifts pursuant to Indiana Code § 30-5-5-9,” automatically includes the statutory restriction unless the POA also includes language such as, “the power to make gifts under this power of attorney is not limited by the restrictions contained in Indiana Code § 30-5-5-9.”
If you and your family are not “wealthy” as this article uses that term, and if you have a POA that contains references to Indiana Code § 30-5-5-9 without language overriding the statutory restrictions, you should ask your lawyer to explain to you why your POA does not override the restrictions. If your lawyer cannot explain the matter, you may need to find a more skillful and experienced estate planning lawyer to take care of your estate planning needs.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
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