Powers of attorney are critical tools in any estate plan. They allow individuals to address incapacity and avoid the complicated and expensive process of placing a person under guardianship. However, the commonly utilized Minnesota Statutory Short Form Power of Attorney may not offer sufficient “power” when it comes to estate planning. To combat this shortcoming, it is advisable to create a General Durable Power of Attorney in addition to the Statutory Short Form Power of Attorney. By doing so, clients’ estate plans will be supercharged.
Minnesota Statutes § 523 offers individuals a straightforward way to grant powers of attorney. Estate planning attorneys commonly use this so-called Statutory Short Form Power of Attorney because it is readily accepted within the state. Among its many benefits, the Statutory Short Form Power of Attorney allows attorneys-in-fact to conduct basic management of a principal’s assets. Further, it offers individuals the added statutory benefits, which require financial institutions and other entities to accept the power of attorney’s power or otherwise be liable to the principal for damages.
However, one portion of the Statutory Short Form Power of Attorney can complicate estate planning. While the Statutory Short Form Power of Attorney allows for gift transactions to the attorney-in-fact, those gift transactions are limited to the federal gift tax exclusion (currently $17,000.00 annually). This limits the ability to gift sufficient money into an estate in cases where clients desire to potentially preserve assets into the future. If a client becomes incompetent, the ability for an attorney-in-fact to be able to gift him or herself an unlimited amount can be an important tool in balancing the estate’s assets.
Estate planning attorneys can better meet clients’ desires regarding estate and capital gains taxes if they are able to freely reallocate assets between principals and attorneys-in-fact when a principal becomes incompetent. Further, the untethered ability to gift may allow for preservation of assets when a spouse becomes incapacitated and requires long-term care.
This is why a second power of attorney, known as the General Durable Power of Attorney (or the common law power of attorney), can be an effective tool in the power of attorney toolkit. The General Durable Power of Attorney is typically used solely for estate planning purposes since it provides the attorney-in-fact with unlimited gifting power, making it easier to reduce the taxable estate prior to the death of the principal. Thus, this additional power of attorney may give spouses and children (as contingent powers of attorney-in-fact) the ability to make gifts and transfer assets to themselves.
In practice, it is advisable to create a Statutory Short Form Power of Attorney with a spouse as the first selection of attorney-in-fact, followed by the children as successors. This designation allows the attorneys-in-fact the capability of individual action regarding ministerial asset management functions (i.e., paying bills and selling real estate). The General Durable Power of Attorney is then used in addition to make major gift transfers to individuals, including to the attorney-in-fact.
Of course, caution is necessary when designating attorneys-in-fact, particularly when there are multiple children acting in this manner. Often, to ensure that gifts are equal for each child, it is advisable to require that all children act in unanimity regarding any gifts. Accordingly, the General Durable Power of Attorney is not appropriate for more unique situations, including second marriages or estates in which children are receiving unequal distributions.
Nevertheless, many estate plans can benefit from this additional power of attorney.