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Gifting: Is an Important Provision Missing in Your Power of Attorney?

Gifting: Is an Important Provision Missing in Your Power of Attorney?

A financial power of attorney is a document in which an individual (the “principal”) appoints someone else (the “agent”, also sometimes called the “attorney-in-fact”) to have the authority to manage the principal’s financial affairs.

Under Maryland law, a power of attorney must specifically list the powers that the principal grants to the agent. See King v. Bankerd, 303 Md. 98 (1985).  One of the most important provisions under a power of attorney, especially for elder law planning, is a provision authorizing the agent to make gifts from the principal’s assets. This provision is critical, as if it is properly drafted an agent would have the authority to be able to possibly protect the principal’s assets from long term care costs and to potentially have the principal become eligible for Long Term Care Medical Assistance (“Medicaid”) benefits on a quicker basis.  If one spouse is in a nursing facility, this provision could allow the agent to transfer the ownership of a principal’s primary residence, to the spouse who is still living in the residence. The spouse living in the residence could then potentially take steps to ensure that the residence would eventually be protected for their children’s benefit (upon his or her death or need for nursing care).

A gifting provision should be discussed in detail with the attorney drafting the power of attorney, but I believe that the importance of this provision is often being overlooked. Frequently I see that there is a gifting provision in a client’s power of attorney, but it is quite limited (for instance it may limit the amount of any gift made by the agent to the annual exclusion amount for gift tax purposes – currently $15,000 per person per year or it may prohibit any gifts from being made to the agent, who may be the principal’s spouse or only child).  Some of these limitations are put in for estate tax purposes, but with the lifetime federal estate and gift tax exemption now being $11.4 million per individual, this is no longer a concern for most individuals. A common misconception is that a person is prohibited from gifting more than the annual exclusion amount or gift taxes would be owed. This is simply not true. If an individual makes a gift of more than the annual exclusion amount to an individual in any year, then the individual making the gift is required to file a gift tax return to report the gift, however no tax is due until the individual gives away more than their lifetime gift tax exemption amount of $11.4 million. Many other times, especially since 2010, when reviewing a client’s power of attorney I find that there is no gifting provision in the document whatsoever.

On October 1, 2010, the Maryland General and Limited Power of Attorney Act (the “Act”) became law in Maryland. Under the Act, a certain format for a power of attorney is set forth.  Since then, I have been seeing many clients who only have a Maryland “Statutory form – Personal financial power of attorney,” which contains no provision authorizing gifting.  Having a Maryland statutory form of power of attorney, while not required, is important because under the Act a person may not require an additional or different form of power of attorney for any authority granted in a power of attorney that is substantially in a statutory form.  The Act further provides that a person who refuses to accept such a statutory power of attorney may be subject to a court order mandating acceptance of the power of attorney and may be liable for reasonable attorney’s fees and costs in any action to confirm the validity of such power of attorney.  Because of this, I generally prepare a statutory power of attorney for my clients and a separate power of attorney with a number of additional provisions (such as gifting). If a power of attorney does not specifically authorize gifting, then it would likely be necessary to petition the Circuit Court to authorize any proposed gift if the principal is no longer capable of making the gift on their own.

While I believe that this is a very important provision to have in a power of attorney, it should be discussed in detail with an attorney to make sure that it is appropriately drafted for each client’s specific situation and that possible safeguards are put into place.  For instance, if a client is not married and does not have any children, then the client may not wish for the agent to have the power to make gifts from the client’s assets. If a client has more than one child, the client may want to require any gifts to children to be made equally or to appoint more than one agent under the power of attorney and require them to act jointly in making any gifts.

SPEAKER
Joseph Mathis

Estate Planning, Estate Administration & Elder Law

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