An individual with power of attorney may gift themselves money, though this decision must take many factors into consideration and include their donor in any such decisions.
A power of attorney owes you a fiduciary duty to act in your best interests; that means they cannot mishandle or steal from you.
Legality
A power of attorney is an essential legal document that gives an authorized agent broad authority over someone’s finances, yet does not give them the ability to gift money or assets directly back to themselves – this would violate their fiduciary duties to their principal and jeopardise trust in both parties involved.
Before giving someone else power of attorney, it is crucial that they possess full mental capacity in order to make any decisions, including giving gifts. This involves understanding what they’re giving away, who it’s going to, its worth and assessing this information in order to come to a decision and communicate it back out again.
Power of attorney abuse can be extremely hazardous, with agents facing charges such as theft, embezzlement, fraud, money laundering and other financial crimes. They could also face civil damages claims from their benefactor or loved ones depending on state law.
Estate planners should review all existing powers of attorney and revocable trusts to make certain they do not include gift clauses that could raise issues related to current tax law and cause unnecessary complications. Gift clauses tend to create issues and should be removed, since these can conflict with current tax legislation.
Create or alter an existing Power of Attorney document so it allows the ability to make gifts. However, before taking this step it should be discussed with an attorney to ensure it does not breach fiduciary duties or put the principal at unnecessary risk of financial abuse.
An agent using power of attorney can give themselves gifts if it is expressly stated in their power of attorney document. For instance, some powers of attorney allow agents to “generally perform any act that the principal could have performed if personally present,” giving them license to make gifts to themselves or third parties as long as it doesn’t go against their principal’s desires or best interest.
Conflict of Interest
Conflict of Interest refers to a situation in which personal interests come into conflict with professional duties or responsibilities of an individual, typically when their social roles generate differing benefits and allegiances that generate conflicting benefits and allegiances that could either be financial or non-financial in nature. When considering power of attorney matters, this means the attorney-in-fact’s vested interests could prevent them from making decisions that serve in the donor’s best interest. Typically this conflict arises when these roles overlap social roles which generate differing benefits or loyalties which often produce competing benefits or loyalties which either can conflicting benefits or loyalties in both directions resulting in conflicts of interests that can either way.
The law prohibits power of attorney agents from gifting their subject’s money or possessions directly to themselves in order to protect donors from being exploited by those using power of attorney to gain unfair advantages from them. Furthermore, this ensures full and accurate accounts can be given of how money and items have been spent for their principal.
Gifting to friends and family members is common among power of attorneys, but all such gifts must be made within reasonable boundaries. No gifts should jeopardize future financial needs of their principal nor exceed the yearly limit without incurring taxation penalties. Any gifts to third parties require approval by the Office of Public Guardian before being made.
There are different types of power of attorney documents, including general, limited, durable and springing versions. Before selecting one to execute for themselves or another person, it is essential that they understand how these documents differ – a general POA grants almost unlimited power to act in legal matters for the Principal’s behalf while limited ones will only authorise decisions for specific matters listed within them.
Durable powers of attorney remain effective even after their Principal loses mental capacity; springing powers only become effective under extreme circumstances. Therefore, it’s essential that any POA document clearly outlines which powers are granted to an Agent and only allow them access to these.
Taxes
Keep in mind that even though a power of attorney document gives its agent broad gifting powers, they still may be subject to taxes and other laws. They’ll need to report any gifts made on behalf of their principal as well as account for expenses incurred while acting as power of attorney – including their own personal expenses incurred while acting. It is wise to consult a professional regarding how this document and other estate planning instruments align with current tax regulations.
If a power of attorney chooses to make gifts to themselves, they must ensure the gifts are reasonable and follow advice from their advisors. They may give gifts to family, friends and charities they support as long as the amount given doesn’t exceed reasonable amounts; similarly any loans given must be interest free and suitable to their financial situation.
Under the Mental Capacity Act 2005, power of attorneys are only legally entitled to inherit assets from those they represent after they die, as a transfer of value is subject to inheritance tax (IHT).
An individual acting as power of attorney could try to reduce IHT by transferring assets into trust before their death, however this can be difficult in practice and many opt to limit the powers of their power of attorney by adding restrictions such as only being able to gift money back into their account or lend it out when certain individuals or charities require gifts/loans from them, instead of giving gifts/loans directly themselves. While doing this may help avoid IHT, taking this path will limit accessing Medicaid or similar governmental programs if long-term care becomes necessary.
Inheritance
As a power of attorney, your primary obligation is to act in the best interests of those you’re responsible for assisting financially and property-wise. While legal permissibility does allow gifts on their behalf to make gifts if it would cause distress to them or reduce quality of life; you should avoid giving away assets which would prevent paying care home fees or ongoing costs from the account you manage for them.
As an estate administrator, it is wise to avoid giving money or other assets directly to yourself as power of attorney unless there is only one beneficiary of your principal’s estate. A court could view such actions as breaching trust between yourself and your principal and that action taken without their approval would constitute a breach of their trust and have no legal justification. According to law, such decisions should be discussed with them beforehand in order to gain their approval before taking such steps.
If you are the sole beneficiary of your principal’s estate, leaving yourself some funds through a POA could violate their trust and require their approval for such arrangements. Interest-free loans also fall under this category: even though technically these are loans aren’t considered gifts if there is evidence that you sought approval for them from them before proceeding with them.
There may be other ways of meeting your goals without gifting funds or assets to yourself directly, for instance through writing a durable power of attorney that allows your agent to transfer ownership from joint tenants to tenants in common – thereby splitting its value for tax purposes while taking advantage of the new federal estate and gift tax exemption (which doubles for married couples).
Before signing any Power of Attorney document in New York, it is crucial that you carefully consider which powers to grant to an agent. New York requires clarity as to which powers are extended versus excluded; including whether gifts can be made.