We advise that just about everyone should have a durable power of attorney to appoint someone they trust to step in and handle their financial and legal matters in the event of incapacity. The only reason anyone should not have a durable power of attorney is if they have don’t have anyone they trust to appoint.
But are all durable powers of attorney the same? Mostly, yes, but in an important way, no.
Typically, people simply sign the form that they get online or that is provided by their lawyer. They are all pretty similar, granting the agent broad powers to act for the person signing the document and then listing a lot of specific powers they have to take action.
In theory, the broad power should be sufficient and the specific powers unnecessary. But often third parties being asked to implement a certain request by the agent requires specific authorization of that action.
Gifting Powers
The one specific power that often differs from form to form is the ability to make gifts. Sometimes the documents limit gifts to the amount of the annual gift tax exclusion, $19,000 in 2026. Other durable power of attorney forms bar the agent from making gifts to themselves.
These limitations can causes problems, especially in the area of Medicaid planning that can involve transferring assets, whether between spouses or to children or other third parties. Here’s a somewhat unique gifting power we recently ran across in our office. The document empowers the agent to:
Make gifts from my assets to members of my family and to such persons or charitable organizations with whom I have an established pattern of giving (or if it is appropriate to make such gifts for estate planning and/or tax purposes) . . . No Agent acting under this instrument . . . shall have the power or authority to (a) gift, appoint, assign or designate any of my assets, interests or rights, directly or indirectly, to such Agent, such Agent’s estate, such Agent’s creditors, or the creditors of such Agent’s estate . . . For purposes of making gifts to individuals under this provision, I appoint [name omitted] as my “Gift Agent.” Provided that they are not the same person, my Agent is authorized to make gifts as appropriate, to my Gift Agent, and my Gift Agent, is authorized to make gifts, as appropriate, to my Agent. . . . Any gifts made to or for the benefit of my Agent or Gift Agent shall . . . not exceed in value the federal gift tax annual exclusion amount . . .
A Unique Solution
The appointment of a “Gift Agent” is unique in our experience. It’s a creative way to permit gifts to agents without authorizing them to make gifts to themselves. But why not allow agents to make gifts to themselves?
There are two reasons. First, to protect the person executing the durable power of attorney. The second is somewhat esoteric. Some lawyers believe that an unrestricted power may be deemed a so-called general power of appointment with this result: If the agent were to die, their taxable estate would include not only all of their own assets but all those of the person who executed the durable power of attorney.
We don’t believe this to be the case since the agent has a fiduciary duty to the person for whom they are acting. Even if they have unlimited gifting power to themselves, they can only make a gift if it is in the best interest of the incapacitated individual.
But if the lawyer drafting the durable power of attorney was concerned about this and didn’t want to bar gifts the agent completely, appointing someone else for this sole purpose is a creative solution. However, it only goes so far since the power of attorney still limits all gifts to $19,000 a year. It also may be confusing to a bank or other institution being asked to honor the power of attorney and implement the $19,000 transfer since the Gift Agent is not the person appointed as the agent under the power of attorney for all other purposes.
The Problem for Our Clients
Unfortunately for our clients, this power of attorney does not permit the MassHealth planning we are recommending. In this case, the person who signed the durable power of attorney has dementia. Her agent is her husband. For a number of reasons, we have recommended that their house that is now in their joint names be transferred into the husband’s name individually. Since the value of the house is well over $19,000, this cannot be accomplished using the durable power attorney.
Instead, the husband will have to obtain conservatorship over his wife as well as specific authorization from the probate court to sign the deed transferring her interest in the house to himself. As a result, they will incur significant legal expenses that would not have been necessary had the durable power of attorney not included limitations on the value of gifts.
The Moral
So, take a look at the gifting power in your durable power of attorney. If it contains limitations similar to those in the document excerpted above, consider executing a new durable power of attorney without such restrictions.