Charles is updating his estate planning, making a new will and executing new powers of attorney. His lawyer tells him the Texas Estates Code as amended last year now allows Charles to give the agent named in his financial power of attorney some additional “hot powers” if he so choses. He counsels Charles to carefully study these “hot powers” and make certain he understands the extent of the power granted. Charles leaves with a lot to think about.
The so-called “hot powers” give the agent the ability to: (1) create, amend, revoke, or terminate a trust during the principal’s lifetime; (2) make a gift, subject to the limitations of the under Texas Estates Code §751.032 and any special instructions in this power of attorney; (3) create or change rights of survivorship; (3) create or change a beneficiary designation; and (4) authorize another person to exercise the authority granted under this power of attorney.
Charles has decided he doesn’t want to grant his agent “powers” (1), (3) and (4). However, he is considering allowing his agent to make gifts.
Charles’ attorney had explained that, under Texas Estates Code §751.032, unless Charles states specific additional limitations in the power of attorney, the agent will be able to make gifts outright to individuals, to a trust, an account under the Texas Uniform Gift to Minors Act and a qualified tuition program of any state that meets the requirements of §529 of the Internal Revenue Code (IRC).
His counsel further advises that the gifts the agent can make are limited to the dollar limits of the federal gift tax exclusion under the IRC or twice that amount if the spouse agrees to a gift split as allowed under the IRC. He tells Charles that the annual gift exclusion to a single individual in 2018 is $15,000 or $30,000 for a split gift.
The attorney explains that the gifts the agent can make are further limited to having to be consistent with the principal’s objectives if the agent actually knows the objectives. If the agent doesn’t know the principal’s objectives, the gift must be consistent with the principal’s best interest, based on the value and nature of the principal’s property, foreseeable obligations and need for maintenance, the minimization of income, estate, inheritance, generation-skipping transfer and gift taxes, along with the eligibility of the principal for a benefit, program or assistance under a statute or regulation.
The lawyer advises Charles he should make his estate planning objectives clear to the agent under his power of attorney.
Charles’ attorney makes it clear that if he names as agent a person other than his spouse, descendant or ancestor, that agent cannot make gifts to himself or to someone to whom the agent owes an obligation. Conversely, a spouse, descendant or ancestor could make gifts to him or herself.
The lawyer emphasizes that, in granting the hot power of gifting to an agent, Charles is creating a greater opportunity for self-dealing, making it all-important that he explicitly trust the agent he names.
Charles has decided that he will name his eldest son, Charles, Jr., as his agent in his financial power of attorney. As much as he trusts Junior, he realizes that allowing him to grant himself gifts presents Junior with a temptation Charles thinks is best avoided. He instructs his attorney to modify the statutory form of the power of attorney and add the specific restriction in his power of attorney that Junior is not allowed to give gifts to himself.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.