Creating a power of attorney allows you to keep your finances and property under the control of someone you trust if old age, disability or a serious illness makes it impossible for you to make decisions for yourself. You may grant your POA many kinds of powers, including the ability to gift some of your property to others.
Like any power you give to your POA, you should feel comfortable with the scope of authority you provide, as your POA could make decisions you would not approve of.
When gift-giving works in your interest
Allowing your POA to make gifts on your behalf ensures your loved ones continue receiving presents from you during special occasions such as birthdays and holidays, just as you would have done if you were able. It also enables your POA to donate to charitable causes that you have supported, allowing your philanthropic efforts to continue.
Additionally, gifting can help manage Medicaid eligibility. By minimizing your estate, you may not lose out on qualified government benefits, plus you could reduce estate taxes.
Potential drawbacks to be aware of
By giving your POA control over your assets, you expose yourself to the possibility of financial abuse or fraud. Your POA may misuse their authority and make unauthorized gifts, depleting your assets in the process. Moreover, without proper limits, your POA could potentially make significant gifts to themselves, compromising your financial well-being.
Limits on gift-giving authority are possible
To mitigate the risks of granting broad gift-giving powers, you can clearly specify who your POA is authorized to make gifts to, including whether they can make gifts to themselves. You should also set a cap on the total value of gifts your POA can make in a given year. Many individuals align this limit with the annual federal gift tax exclusion amount to avoid potential tax consequences.
Granting gift-giving authority to a POA can offer convenience and flexibility, but it also demands careful consideration and appropriate safeguards. By understanding the pros and cons and establishing clear limitations, you can ensure your wishes are respected while minimizing the risk of abuse.
