By: Maria Worthington McKenna, Nicole T. Livingston, and Kelly A. Burgy
Many Americans spend a lot of time and effort in managing their finances. While feeling healthy, individuals should plan ahead now and ensure that someone will take care of their financial duties by setting up a Financial Power of Attorney. This important legal document will protect your finances from events that might leave you incapacitated, like an injury or accident.
Financial Power of Attorney: What is it?
A Financial Power of Attorney (POA) allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become mentally incapacitated (unable to make your own decisions) due to illness or injury. Without this document, bills won’t get paid, tax returns won’t be filed, bank and investment accounts held in your name will become inaccessible, retirement distributions can’t be requested, and property can’t be bought, sold, or managed.
What happens if I don’t have a POA and I am not able to handle my affairs?
If you experience an emergency – such as a coma from a car accident – or – a health condition sets in and you are unable to make or communicate your financial decisions and don’t have a POA in place, a judge will likely appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship.
Why would a court do that?—You may ask. As an adult, no one is automatically able to act for you, you must legally appoint the person of your choosing through the use of a POA. Without it, you and your loved ones could lose valuable time, money, and control.
WORD OF CAUTION: Don’t think you’re protected just because your assets are held jointly with your spouse, child, family member, domestic partner or friend. Here are three reasons why you shouldn’t rely on joint ownership:
Limited power. While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners.
Tax liability. By adding a family member’s name to your accounts or real estate titles you might be saddling them with gift tax liability.
Property seizure. You read that correctly. If your joint owner is sued, then your property could be seized in order to pay their debt.
Medicaid disqualification. Putting a loved one’s name on a joint bank account or property title can disqualify them from receiving government benefits, such as Medicaid.
Only a comprehensive incapacity plan will protect you and your assets from a court-supervised guardianship and the misdeeds of your joint owners. Do not rely on joint ownership as your plan—it’s simply too risky and unreliable.
Already have one? It may be outdated!
Maryland passed a new law effective October 1, 2023.
A POA can become “obsolete” in as short as one year. Depending on your circumstances, a stale, obsolete power of attorney may not be able to help you and your family with insurance contracts, retirement plans, banking and investment accounts, online personal accounts such as email, Facebook, Instagram and LinkedIn, and elder care and special needs planning.
On May 16, 2023, the Governor approved a bill introducing a new Maryland Statutory Power of Attorney document. This bill created a new Statutory Power of Attorney form, replacing the form that has been in place since 2010. The new Power of Attorney document does not go into effect until October 1, 2023.
The new Power of Attorney contains the following alterations, among others:
Opt-in to Agent Compensation You will have the option to indicate if your Agent will be entitled to “reasonable compensation,” or if you would like to limit their compensation.
Opt-in to Allow Your Agent to Designate a Successor You will now have the ability to opt in to allow your Agent to appoint a successor agent. This could be helpful in the event that you have no other backup agents named. By allowing your Agent to appoint their successor, a costly court proceeding for a Guardianship can be avoided.
Updates to the Definition of Tangible Personal Property The new Power of Attorney form defines tangible personal property to explicitly include motor vehicles, boats, planes, and other titled property. There have been issues with the current form because some institutions do not consider any titled property “tangible personal property.”
The law states that if a power of attorney is “substantially in the same form” as the statutory form, any person that refuses to honor the power of attorney will be liable for the agent’s attorney fees in seeking court intervention. Unfortunately, the statutory form still has some notable absences, such as the power to engage in Medicaid planning, the power to engage in income tax and/or estate tax planning or to take care of the principal’s pets. As a result, we have all of our clients sign a supplementary Power of Attorney form in addition to the statutory form. The statutory form takes advantage of the enhanced enforcement language. The supplemental form has a more exhaustive and thorough description of the powers being given to an agent and includes language that gives the agent the power to act in areas that are not addressed in the statutory form.
If you want to update your Power of Attorney document to the new form or if it’s been more than a year or two since you’ve signed your power of attorney, it might be time for a fresh one. Call us! We can help make sure you and your family are fully protected by helping you determine:
Who would be the best choice for this responsibility,
How much authority you should give your financial agent, and
When to make your power of attorney become effective.
Regardless of your priorities, there is a financial power of attorney right for your situation and goals. Determine your specific needs while you are of sound mind. Of course, nothing tops the advice and recommendations of an attorney experienced in these matters. So if you are wavering between your options, give us a call.
At Council Baradel, we strive to stay informed about the latest legal developments in the Estate and Trust space so that we can provide our clients with the best legal solutions. We have a team of experienced attorneys who focus on Estates and Trusts and can provide personalized legal services to meet your needs.