There’s no doubt that keeping your estate planning documents in order and up-to-date is important, but there’s one document in particular that should (potentially) receive the most attention: your financial power of attorney.
A financial power of attorney gives the person of your choice the authority to manage your finances and property in the event of your inability to do so. That’s why revisiting this document is so essential: your financial power of attorney ensures that the person you have appointed (your agent) is still the person you want to fill that role, and that the person is willing and able to act as your agent.
In the event that you would like to change your agent, it is crucial to revoke the power of attorney as dictated by state law while you still have the mental capacity to revoke it. Similarly, if you have been extended the role of principal on someone else’s documents and wish to resign, it is necessary to take the proper steps to make your resignation effective – otherwise, this avoidable mistake could be a costly one.
In Stauffer v. IRS , [1] a case recently decided by the First Circuit Court of Appeals, the unfortunate consequences of failing to revoke a power of attorney or resign as an agent are displayed.
In this particular case, Carlton Stauffer named his son, Hoff, as his agent under a financial power of attorney. While in the role, Hoff was empowered to act on his father’s behalf to manage his financial affairs. Unfortunately, it was only after accepting the role of agent that Hoff discovered that Carlton’s girlfriend was spending exorbitant amounts of Carlton’s money.
Hoff asked Carlton to put his girlfriend on a monthly allowance to better control her spending, but the request wasn’t taken well. In fact, it triggered a dispute between father and son, leading Hoff to tell Carlton that he was no longer willing to act as his agent.
While Carlton took the appropriate steps and drafted several revocations of the power of attorney, he ultimately never sent them to Hoff. In turn, Hoff never validly renounced his role as his father’s agent.
The two men eventually reconciled after several years, with the earlier incident all but forgotten. When Carlton died, Hoff – acting as the personal representative for the estate – filed six years of his father’s tax returns, only to discover that on one of the earlier returns, there seemed to have been an overpayment of $137,403.
On behalf of the estate, Hoff sought a $97,364 refund from the IRS. By this time, however, Hoff was out of luck – the IRS asserted that the claim for a refund cam e too late , as the statute of limitations had run out. Hoff then appealed the decision, claiming that his father had a financial disability that should override the statute of limitations.
In the end, the Eighth Circuit Court of Appeals held that Hoff, representing his father’s estate, was not entitled to receive the refun d, because Hoff had been authorized to act on his father’s behalf under the power of attorney, which Carlton had never revoked nor renounced. Hoff’s failure to act in a timely manner reduced the size of Carlton’s estate by nearly $100,000.
If you have made someone your agent under a power of attorney, but have since changed your mind, it’s recommended that you consult your estate planning attorney to help you validly revoke the power of attorney under your state’s law. This process generally involves the following:
Warning : Failure to notify an involved institution, agency, or person about the revocation of your power of attorney will result in their legal protection if they, in good faith, enter into any transactions with the person you had named as your agent. If such transactions occur, these parties will not be held liable for any resulting losses, and you could be held liable for the acts of your agent (in spite of your revocation).
I f you have been named as someone’s agent under a power of attorney, but do not wish to serve in that rol e, ask an experienced estate planning attorney to help you carry out a valid “ renunciation ” under state law, which may require the following steps:
No matter what your state in life, it’s never too early to name someone you trust to act on your behalf in the event that you become too ill or are unable to make financial or medical decisions. However, once you have made that choice, you should revisit your powers of attorney periodically to make sure that the person you have named as your agent is still the best person to act on your behalf.
Moreover, it is necessary to revoke a previous power of attorney and create a new one if you have gotten married or divorced, moved to another state, or have lost your power of attorney document. In any of these situations, a legally-valid revocation is crucial to prevent avoidable loss and heartache.
Similarly, those who have been named as an agent under a power of attorney but are no longer willing or able to act in that role must resign in the manner specified by the power of attorney document, or by state law. Failing to do so could lead to confusion and unnecessary expenses.
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Reference:
[1] 939 F.3d 1 (1st Cir. 2019).
