Can a power of attorney transfer money?

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Proxy form

For many families with elderly or engaged people in estate planning, a power of attorney is essential, especially if the mental capacities of the elderly person are compromised. Having someone who can take care of legal and financial matters can make this part of life a lot easier. However, power of attorney is a radical grant of power. Depending on how you structure this grant, a power of attorney can – in some cases – transfer money and property to themselves. However, it is rare and is only allowed in specific circumstances. Here is a general overview of this topic. Keep in mind that power of attorney laws vary from state to state. It is prudent to consult a lawyer before making a decision.

A Financial Advisor can help you understand if there are alternatives to creating a power of attorney when engaging in estate planning.

What is the power of attorney?

Power of attorney is when you give someone the power to make legally binding decisions on your behalf. This can mean managing financial assets, making choices about medical care, signing contracts and other commitments. A proxy can access confidential documents and their decisions are as binding as if you had made them yourself.

Most of the time, the power of attorney is a limited authorization. That is, you will give someone a power of attorney to do specific things or to act within a specific framework. For example, the IRS would generally not accept taxes filed by a third party; you have to file your taxes yourself. However, giving your tax preparer a power of attorney gives that person the power to report your taxes as if you had done so on your own. This is standard practice and allows the tax preparer to view a client’s confidential IRS and bank records, as well as file taxes on behalf of the client. Such power, however, does not allow the person to sign contracts on your behalf or sell your car. Their authority is limited to reviewing your finances and filing documents with the IRS.

In some cases, you can assign what is called a general power of attorney. It is one of the three types of lasting power of attorney (the other two are special power of attorney and a medical or medical power of attorney). With a general power of attorney, the person can make pretty much all of the decisions on your behalf while the assignment of power of attorney remains valid. People will often give a general assignment to a trusted family member or longtime friend if they are unreachable or unable.

Limits on Proxy Asset transfers

However, even a general power of attorney has limits. Generally, a power of attorney cannot transfer money, personal property, real estate or any other property from the assignee to itself. Most, if not all, states have laws against this type of self-operation. It is generally governed as a fraudulent transfer (i.e. theft by fraud). The beneficiary can enforce these laws in civil and criminal courts and, to the extent possible, can have all transactions settled. If the beneficiary is unavailable, incapacitated, legally incompetent or otherwise unable to enforce their own rights, third parties will generally have the right to enforce such laws. Most often this includes family members and potential heirs.

This rule also applies to transfers in the interest of the agent. For example, a power of attorney could also not transfer property from the beneficiary to a spouse or child. Generally speaking, a court will look with suspicion on any unnecessary or uncompensated transfer of a power of attorney, particularly if the beneficiary was unaware of the transfer or is legally incompetent.

For example, suppose you yourself had to sell a beneficiary’s house. The concessionaire could have this transfer declared null and void, and the title would remain in their name. It would create a particular mess if you gave up their house yourself and then sold it. In this case, the sale itself would also likely be declared null and void, and you would likely owe the buyer both a refund and damages.

However, a power of attorney can transfer assets to themselves if they have the specific written consent of the transferee. The concessionaire can authorize most forms of transfer of ownership, provided that the goods belong to him and that the authorization is specific. Something like “the authority to take money if necessary” will generally not be enforceable.

Usually this is included in the power of attorney form itself, as the courts may require a notarization in order to honor this authority.

Recipients can only give this authority if they are mentally and legally capable. If you plan to want your proxy to have this authority at some point, be sure to consider it in the initial grant. You may not be able to legally edit this document when the issue occurs.

Asset transfer most often occurs in three circumstances:

For people who will need a lot of help, the power of attorney can take a long time. Often the recipient will consider some form of compensation in return for these services.

Typically, payment will be authorized directly in the proxy form. For example, the power of attorney may authorize an hourly rate of pay or an upfront payment for services. The power of attorney can transfer money from the beneficiary in order to meet these conditions. The power of attorney should keep scrupulous records of any arrangement, for example recording every hour worked in case of hourly rate of pay, as third parties (especially heirs) may sometimes require legal oversight of any withdrawals.

Heritage

Heritage

It is also not uncommon for families to use a power of attorney as a means of passing on important assets, such as immovable and family heirlooms, across generations. For example, you could authorize a power of attorney for your son or daughter to draft something called an act of renunciation on the family home. This would allow them to take ownership of the house from you if and when it is time for them to take over that property.

This can be a relatively easy way to set up a future transfer. You don’t want to give up your house just yet, but someday you want the next generation to have it. However, as with most proxy actions, it’s important to understand that the fewer limits you put on that authority, the more confidence you need to have that the person will act as and when you want them to.

It’s rare. In some cases, a power of attorney may transfer assets to itself if this is required by another aspect of its power of attorney. For example, let’s say acting as someone’s attorney required you to buy plane tickets and travel. You may be able to claim reimbursement from the recipient’s accounts if you can demonstrate that these expenses were both necessary and entirely within your authority.

While this does not happen often, it is more likely to apply in cases where the beneficiary is legally incompetent or otherwise incapacitated. If the beneficiary is competent and available, it is likely that a bank or court will simply rely on the person’s judgment as to your actions and reimbursement.

Power of attorney vs executor

It is important to distinguish between the responsibilities of a person having a power of attorney and a person appointed as executor. The executor is the person responsible for managing the estate throughout the probate process. The homologation process is the act of filing the deceased’s will with the appropriate estates court, locating and collecting all assets, paying off all debts associated with the estate, and distributing what is left to the appropriate beneficiaries.

The two roles, power of attorney and executor, can be occupied by the same person, but the roles themselves are very different.

The bottom line

Older lady signing a power of attorney form

Older lady signing a power of attorney form

An Enduring Power of Attorney (which can be either general, special, or medical) does not normally allow someone to transfer any of your assets to themselves. However, if you give that person specific written permission, they can do so. This is most often used to let a power of attorney pay for its time or to transfer assets between family members. Keep in mind the difference between a person with a power of attorney and the executor.

Advice on estate planning

  • Is Power of Attorney the Right Option for Your Own Future? The truth is, it depends on your goals. This is where a financial advisor can be invaluable. Finding one doesn’t have to be difficult. With SmartAsset’s matching tool you can find a financial advisor near you to help you decide on the right goals and strategies for your own financial future, however you get there. If you are ready, start now.

  • Your agent may have to make decisions regarding your 401 (k) or IRA accounts. Find out how much money you will have in your account when you retire with our Calculator 401 (k).

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