April 7, 2023
Financial powers of attorney are an important estate plan document and recommended for almost all estate plans, but there are some limitations with these documents. From my conversations with clients and their families, the following are some of the limitations that I find are good to know about ahead of time.
Generally, a person, called a “principal,” executes a durable general financial power of attorney to appoint an agent for them to act in all financial matters when they are not able to act themselves. The agent is required to act as their fiduciary and must act in good faith and in their best interest. The agent essentially steps into their shoes to complete the financial transactions for them.
Though the financial power of attorney may provide the agent with the general power over all financial matters, the following are some situations where additional information or forms may be necessary.
The principal and agent should remember that the financial power of attorney is only valid while the principal is living. After the principal’s death, their financial matters need to be administered by an appointed personal representative or a trustee.
When working with the Internal Revenue Service, a Form 2848 Power of Attorney and Declaration of Representative will be needed for the agent to act on behalf of the principal in matters relating to the IRS. This would include filing tax returns or communicating with the IRS.
The Social Security Administration does not accept the use of a financial power of attorney. Rather, a representative appointee must be appointed. If you do not appoint a representative payee and one is needed, the SSA office can appoint one for you. The person who wants to act as the representative appointee will need to file form SSA-11.
When working with the Department of Veterans Affairs, the department will not allow an agent appointed by a financial power of attorney to act on behalf of the principal before the VA. The agent will need to file a VA Form 21-22a.
Generally, financial institutions should honor a financial power of attorney that is valid and should not require the use of the financial institution’s power of attorney form.
However, to avoid future questions of validity, it may be advisable to submit a copy of the financial power of attorney to the financial institution for review prior to the need for using the document.
Balzarini is an attorney at law with Hellmuth & Johnson PLLC. Contact him at [email protected].
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