Giving another person the ability to make significant financial decisions and/or take actions on your behalf is not an easy thing to do. That said, various situations may arise where you no longer want to, or are able to, manager your own finances. In such cases, you want to make sure someone else can act on your behalf.
Typically, this is done via what’s known as a Power of Attorney (POA) document. This form, which is generally prepared by an estate planning attorney, grants a person – known as your attorney-in-fact (or agent – the ability to step into your shoes and make what are often critical and important decisions.
Clearly, great thought should be given to whom you name as your attorney-in-act. All too often through, that’s where the thought stops. In reality, a commensurate level of thought and discussion should take place regarding the document itself and the provisions that are incorporated into your POA.
When it comes to estate planning, one of the primary goals is to transfer as much of a person’s assets to their intended beneficiaries at the lowest cost or, in other words, by paying the least amount of tax. Today, the federal estate tax exemption is $5,430,000 per person. It is also portable (can be transferred) between spouses, giving them a maximum exemption of $10,860,000 per couple and the maximum rate is 40%. That is a far cry from where we’ve been. In the not-too-distant past, the federal exemption was at $1 million, it wasn’t portable and the top rate was 50%.
Due to the massive amount of assets that could have been lost to federal estate tax, people looked for any way to avoid it. Oftentimes, that included gifting away assets during life, which, while providing an estate tax edge, probably wasn’t the better move when it came to the income tax side of things. As a result, in order to maximize the value of one’s estate, a careful analysis of estate tax costs vs. income tax costs was necessary.