Guiding You Through Life's Storms

Why You Need a Florida Durable Power of Attorney: Part 1

by | Jun 5, 2024 | Estate Planning

Over the years I have come to realize a Durable Power of Attorney is one of the most misunderstood and underutilized legal documents in people’s estate plans.  While most people have a Durable Power of Attorney as part of their estate plans, very few understand what a Durable Power of Attorney actually is and how important it should be in their everyday lives.  The importance of a Durable Power of Attorney and how it can be used to make your life better is too much for just one article, so this will be the first of four articles covering how a Durable Power of Attorney can – and should – be used to address everyday issues you face.  In this first article we will specifically address issues related to the management of your finances.

Bob is single and as he gets older he worries about how his bills will be paid if he is incapacitated for an extended period of time.  His friends, as well as his banker, suggest Bob put his oldest daughter (“Mary”) on Bob’s accounts.  Bob thinks this is a good idea because Mary lives just ten miles away, whereas his other children live too far away to actively help him if he needs regular assistance.  Bob adds Mary to his financial accounts and goes on about his business.  Sounds simple enough, but Bob is unaware of several issues that may bring this simple plan to ruin:

  • Bob’s accounts are now subject to the claims of Mary’s creditors. Although there are legal defenses against her creditors coming after Bob’s accounts, it may still cost him thousands of dollars in attorney fees to keep those creditors at bay.
  • During Bob’s lifetime Mary can access and use Bob’s money without limitation and without any requirement Mary receive Bob’s permission first. If Mary takes Bob’s money and refuses to return it to him then he will either have to let Mary keep the money or sue her to recover the money.
  • Even if Mary has no creditor issues or never misuses a dime during Bob’s lifetime, Bob’s other children may not receive an inheritance following Bob’s death because Mary, as co-owner of Bob’s accounts, is now the legal owner of those accounts; the other children have no legal means of forcing Mary to give them any money. Even if Mary decides to share the money with her siblings, Mary may be required to file a gift tax return (IRS Form 709) if the amount she shares exceeds the annual per person applicable gift tax exclusion under Federal la.  Although Mary can use her personal exemption from federal estate and gift taxes to cover the gift tax, failure on her part to file a gift tax return in a timely manner may still subject her to interest and penalties for failure to file (what makes this even worse is that there is no statute of limitation for tax returns that go unfiled).

Bob’s story is not unique; I encounter each of the aforementioned scenarios on multiple occasions each year – just as I have every year since I started practicing law in 2006.  Each of these scenarios could have been avoided if Bob (known as the “Principal”) had appointed Mary (known as the “Agent”) to act as on his behalf under a Durable Power of Attorney.  Acting as Bob’s Agent, Mary would have been able to access Bob’s accounts at any time to pay his bills without worry that: (1) Mary’s creditors would make a play for Bob’s money; (2) Mary would abscond with Bob’s money; (3) Bob’s other children would be inadvertently disinherited; or (4) May would be liable for gift taxes.  In addition to handling Bob’s financial accounts, as an Agent Mary also has authority to address issues that include, but are not limited to, filing Bob’s taxes if he is unable to do so, ensuring Bob’s required minimum distributions are withdrawn from IRAs on time (otherwise there is a 50% penalty), collect payments on loans Bob made to others, manage business matters Bob is engaged in, and commence lawsuits against others on Bob’s behalf or defend Bob in any lawsuits filed against him.

A Durable Power of Attorney is a powerful tool that should be incorporated into your estate plan because it allows someone you choose (just as Bob chose Mary) to act on your behalf while avoiding many of the unintended consequences joint ownership of accounts can cause.  In the next article we will discuss the importance a Durable Power of Attorney can play in ensuring you receive the best health care possible.  In the meantime, if you have questions about your existing Durable Power of Attorney, or need to add one to your estate plan, give me a call today at (352) 432-8859.

Written by John T. Marshall, Esq.