Unleash a ‘power’ for finances

If you’re suddenly unable to handle your financial affairs, it could lead to a big mess if you haven’t provided for the possibility. Strategy: Include a power of attorney in your estate plan. This legal document appoints someone—called the agent or attorney-in-fact—to act on your behalf.

Generally, you’re better off with a “durable” power of attorney than a “nondurable” one.
Here’s the whole story: A run-of-the-mill power of attorney is nondurable. This means that it no longer applies if you lose your capacity to make decisions. But a durable power of attorney remains in effect in the event you are incapacitated. Thus, the agent can file your tax returns and handle other critical tax matters like maximizing the marital deduction and estate tax exemptions under current law. Similarly, this designated agent can elect to take retirement distributions, disclaim an inheritance and so on. But it’s not as simple as just signing a piece of paper. There are a couple of key considerations.

  • You must name someone you trust as the agent. Frequently, it is a spouse, child, sibling or close family friend. Alternatively, you may choose a professional who is familiar with your financial matters. If you’re leery about giving one person such a wide berth, you might name co-agents who have to make the decision jointly.
  • Have the power of attorney drafted by an attorney experienced in estate planning. Don’t follow some random form you found somewhere online. A mistake in the document or one that isn’t clear can end up costing your estate.

Tip: The document should be reviewed periodically by your attorney and updated when necessary.

Small Business Tax Strategies
October 2019