Besides directing what happens to your finances when you pass away, a comprehensive estate plan also addresses the possibility that you could become unable to handle your financial affairs while you are still alive.
You may have signed a financial power of attorney (POA) that allows one or more people to act on your behalf if and when you become unable to act for yourself. However, a financial POA is not valid in certain situations. Knowing when your POA will not be recognized is an often overlooked aspect of estate planning. To ensure that you have anticipated every contingency, you should discuss with your estate planning attorney the POA exceptions noted in this article.
What Is a Financial Power of Attorney?
When you sign a financial POA, you grant the person you designate, known as an “agent” or “attorney-in-fact,” the legal authority to manage your financial matters, including banking transactions, real estate transactions, investments, gift-giving, and paying bills.
You can name more than one person as your agent under a financial POA, though joint agents might not be advisable in some circumstances. You can also appoint alternates in case your first choice cannot fulfill their responsibilities. Before naming anyone in a POA, it is a good idea to consult the person you wish to appoint as agent to make sure they are willing and able to handle the role.
In most states, a financial POA can be immediate or springing. An immediate POA takes effect the moment it is signed whereas a springing POA is conditional, taking effect when you become incapacitated or when another predetermined condition is present. Both types of financial POA are effective only while you are living. When you die, your designated agent loses their authority.
Some Situations Can Require Additional Documentation
Financial POAs can be broad, but they are not recognized in all situations. If you want to authorize your agent to work with the Internal Revenue Service (IRS), the Social Security Administration (SSA), the Department of Veterans Affairs (VA), and some financial institutions, you may have to complete additional documentation.
Working with the IRS
The IRS has its own means for designating an agent. Before an agent can represent you in front of the IRS, you must complete Form 2848, Power of Attorney and Declaration of Representative. Form 2848 authorizes an agent (typically an enrolled agent, an accountant, or an attorney) to represent you in IRS audits and negotiations. But Form 2848 is also required if you just want an agent to handle basic tax matters such as filing your tax forms or paying your taxes.
According to the Form 2848 instructions, the IRS might accept a POA that meets the requirements for being a substitute and is submitted to the IRS along with Form 2848. Although your signature is not required, your agent must sign the form. Form 2848 also requires you to specify the tax matters and years for which you are authorizing the agent to act. For more information, see IRS Publication 947.
Working with the SSA
The SSA does not recognize financial POAs. To designate someone to manage your Social Security benefits (including SSI payments), you must appoint a “representative payee.” You can appoint a representative payee in advance. If you do not appoint a representative payee and the need for one arises, the SSA may appoint one for you.
A potential representative payee must complete form SSA-11 and, usually, an in-person application at their local Social Security office. Representative payees are expected to fulfill a range of required duties and be actively involved in the beneficiary's life. They may occasionally be asked to submit a report to the SSA accounting for how they used the beneficiary's benefits.
Working with the VA
Veterans who are not physically present or who want help with their claim may authorize another person to represent them when pursuing a claim for compensation or special monthly pension benefits. The veteran does not have to be incapacitated.
However, the VA states that an “individual with POA under State law is not authorized, based on the State appointment, to engage in VA representation.” The VA allows only certain types of representatives, and they must apply for accreditation using different forms. Individual representatives must use VA Form 21-22a. Accredited representatives must use VA Form 21-22.
More information about the VA and POA is available in this document.
Working with Financial Institutions
Banks and other financial institutions sometimes refuse to honor financial POAs. In some cases, they may simply be exercising caution to protect themselves from authorizing an illegal transaction. In other cases, the institution may have its own standard POA form for accounts under its management.
In some states, including Florida, financial institutions may be legally required to accept or reject a POA within a certain time frame and could face penalties for unreasonable denials. However, for the sake of expediency, check with your financial institutions and find out whether they have their own power of attorney forms. If they do, bring the form to our office to be reviewed and executed alongside your financial POA. We will also need to ensure that the two documents do not conflict.
We Are Here to Help
Though a financial POA is crucial for ensuring that your financial affairs will be handled according to your wishes, it may not cover all possible needs. By planning proactively, we can help ensure that you are properly protected regardless of the situation. Call us today to review your current estate planning documents or put your own personalized plan in place.
U.S. Dep't of Veteran Affairs, POA Under State Law Does Not Create VA Representation, M21-1, pt. I, ch. 3, § A.1.c. (Feb. 19, 2019), https://www.knowva.ebenefits.va.gov/system/templates/selfservice/va_ssnew/help/customer/locale/en-US/portal/554400000001018/content/554400000014076/M21-1,-Part-I,-Chapter-3,-Section-A---General-Information-on-Power-of-Attorney-(POA).