Gifting Assets as Power of Attorney
A power of attorney is a legal mechanism by which a person, known as an “agent” is appointed to act on another person’s behalf. The person creating the power of attorney is called a “principal”.
The power of attorney may include a broad array of functions the agent may perform; conversely, the power of attorney may be limited to include just a few tasks. One power to be given to the agent is the power to bestow a gift.
Creation of the Power of Attorney
A power of attorney is created pursuant to the requirements of the state in which the principal resides. Each jurisdiction contains different mandates as to what can be included as an agent’s power. In order to be legally effective, the power of attorney must be properly executed and fulfill all requirements.
Generally, the power of attorney must be dated, signed and notarized. Most states allow the agent to make gifts of assets by the principal’s bestowing such power upon the agent.
However, any gifting by the agent must be done in the agent’s capacity as a “fiduciary”, which means that the act of the agent must be in the principal’s best interest and must be in good faith.
Gifting of Assets
Depending upon how the power of attorney document is structured, the agent may be able to make unlimited gifts utilizing his or her own discretion. Therefore, if the agent sought to give the principal’s property to a charity, the agent may be able to do without any restriction, pursuant to the language contained in the power of attorney document.
The agent must always take any actions in good faith, in the best interest of the principal, and as a fiduciary.
Consequently, the gift must be made accordingly.
Additionally, the power of attorney may restrict the gifting of assets to certain assets, recipients, time periods and/or contingencies. For instance, the agent may be able to give a gift of a vehicle to the principal’s child, but only upon the child attaining the age of 18 years.
Revocation of Power of Attorney
A power of attorney is generally revocable upon the principal’s destruction of the original power of attorney. Thus, if the principal obtains information that the agent is making gifts that the principal is not in agreement with making, the principal may want to revoke the power of attorney.
The principal must communicate the revocation to the agent and to any other interested party as well. Furthermore, the power of attorney is extinguished upon the principal’s death. Moreover, the power of attorney is generally revoked when a new power of attorney document is properly executed.