When you can’t manage your affairs, your Statutory Durable Power of Attorney (DPA) is the key to managing your lockbox of assets. It is the written permission slip in which you give your permission to the person you have chosen to be your helper to manage your business and financial matters. A DPA seems like such a simple paper, why not just pick up a preprinted form from the book store or download a generic form from the Internet (a skeleton key, so to speak)? It seems like you should be able to give your helper all the authority he would need simply by writing something like “my helper can do whatever I could do if I were there and doing it for myself.”

Alas, life is not so simple. I remember after closing a business transaction with my fellow attorney, John S. Bailey Jr., Jack said, “We must have done something wrong. Transactions aren’t supposed to go this smoothly.” So it is with Durable Powers of Attorney. . . when they seem the simplest, there may be the greatest danger.

Contrary to common sense, a DPA is construed narrowly . . . if it doesn’t specifically give authority, others probably won’t presume that it grants the authority.

For example:

(a) Some real estate lawyers won’t approve a deed signed by an Attorney-in-Fact (the “helper”) unless the DPA specifically refers to the property being sold.

(b) One brokerage house refused to allow a helper to sell stocks because the DPA did not specifically say that the helper had authority to sell securities, although it gave the helper authority to “sell or otherwise dispose of all of my real or personal property” (stocks are personal property) and specifically gave authority to transfer and assign stocks and bonds.

(c) Just this morning I received a letter from a Medicaid planning client who has been trying to rearrange the ownership of a stock brokerage account now jointly owned by his parents so that it will be owned solely by his father: “My father’s brokerage firm is refusing to honor my mother’s Power of Attorney [because] the DPA does not grant her helper specific authority to “make a gift” of my mother’s interest in the account to my father.”

(d) The Internal Revenue Service will not deal with your helper unless your DPA gives permission and further specifies what tax years and what types of tax returns they and your helper may discuss.

(e) The Bureau of Public Debt, which handles all U.S. Savings Bonds, will not allow your helper to cash your bonds unless the DPA gives permission to cash the bonds and to sign a form stating who will be paying the income tax on the accrued, untaxed interest.

(f) Your helper cannot give away your assets unless the DPA gives specific permission to do so (a la the above incidents). Even when gift language is included, unless the DPA allows larger gifts, the gifts are limited to the amount which can be given away annually without having to file a federal gift tax return.

(g) There is a particularly strong stigma against your helper making gifts of your assets to himself. Yet, think about who you want to be your helper. Isn’t he/she probably one of the same people you would want to safeguard your stuff if you needed to get it out of your name? Most folks name their spouse or children as their helpers.

(h) DPAs written before the mid-1980s may not be “durable”; that is, they may not contain language saying that you intend for it to continue to be a valid permission slip even after your mind fails to where you could not do the tasks for yourself.

A carefully written DPA will help you avoid these dilemmas. IN ADDITION to the usual stuff, your well-written DPA should include:

(1) specific permission to liquidate U.S. Savings Bonds and other government securities and to sign the appropriate document saying who will be paying the income tax on any accrued interest;

(2) specific permission to deal with all federal, state, and local tax authorities about all taxes, such as income, gift, real estate, personal property, and estate taxes, during an appropriate range of tax years;

(3) specific permission to the helper to make gifts of any size to anyone, including gifts to the helper himself. This is a vital provision when the helper is trying to protect assets from nursing home costs.

(4) specific permission stated clearly – very clearly – to brokerage firms to honor requests by the helper to make gift transfers of assets being managed by the brokerage house to anyone, including the helper himself. The securities industry is a stickler about requiring specific permission to do such things (note that many of the examples given above involved securities).

(5) declare that the DPA is not to be considered a “General Power of Appointment.” If a DPA gives your helper too broad authority to give everything to himself, the IRS might consider it a “general power of appointment” which could cause your assets to be included in the IRS’s view of the estate of your helper, should he die first. So, the DPA should state that it is not a “general power of appointment.”

Your Durable Power of Attorney is one of your most valuable planning tools. While you are able, you owe it to yourself and to your family to get a well written comprehensive one. A good one is a bargain at any price; an inadequate one is expensive at any price. Make sure the key to your lockbox will fit all of the locks on your assets.

***

Gerald W. Townsend is a partner in the Elder law firm of Fluharty & Townsend, Parkersburg, W.Va. His practice focuses upon meeting the legal needs of seniors in West Virginia, with special emphasis upon protecting the home and life savings from the cost of nursing home care. He can be reached at jtownsend@fntlawoffices.com