Sam is a U.S. citizen working for a company here in Canada. He has done so for 30 years now. The country has been good to him, and he has managed to build up some fairly substantial assets. If you ask him, he will say that he is "comfortable."
In fact, Sam is so comfortable that he will be liable for substantial U.S. estate taxes when he dies. That is true even if he never goes back to the United States, and dies here in Canada. He has good advisers and understands the risk. The advisers have, among other things, recommended a strategy of making gifts to his children and grandchildren. He makes a gift to each one of them in the annual maximum allowed under U.S. gift tax legislation. The more he transfers now, the less the U.S. government will be able to tax later. That is smart.
What will happen if Sam loses his marbles? Sam has signed a power of attorney appointing his son, Jack, to take over his financial affairs. Jack will be obliged to look after his dad with his dad's money. Within very limited exceptions, he cannot give any of the money away. The gifts will grind to a halt. That means the exposure to U.S. estate tax will continue to build. Sam would not want that. To avoid it, Sam needs to sign a specialized power of attorney that expressly allows his son to continue making the gifts.
Sam's story is real. His name and other details have been changed to protect his privacy.
Sam is not alone. Many of us may need to sign a power of attorney with a special clause in it. That may apply to you if you answer "yes" to any of the following questions.
Do you own a company that you want to pass to the kids? Some business owners need to conduct an estate freeze to defer capital gains and expand access to the capital gains exemption. Some business owners periodically "refreeze" the shares. Your attorney cannot take that step unless your power of attorney document expressly allows it.
Do you make regular gifts to charity and want that to continue? Some people make an annual gift to a charity that is dear to their heart. They might have committed to a pattern of gifts to their church. Your attorney cannot continue those gifts without an express clause to allow for it.
Do you support one of your parents? Some of us pay bills for our mother or father. That can be the difference in keeping your parent out of a facility, or allowing them to stay on somewhere cosy and comfortable. Your attorney cannot spend your money to help your parent without an express clause to allow for it.
Do you want your money spent aggressively for your future care? Some of us live in fear that we will be neglected if we are forced to go into a personal care home. We want our money spent to keep us in our homes. If we do have to go into a facility, we still want as much help and support as possible. That might mean spending money, sometimes a lot of money, to pay for outside caregivers.
The attorney you appoint will be uncomfortable in making those outlays if it is grinding your wealth away. The future beneficiaries of your estate might get nasty and greedy and be hard on the attorney. Your attorney needs an express clause in the power of attorney forcing the attorney to spend aggressively for your future support and comfort.
Other questions could be added to that list. Powers of attorney documents are frequently dealt with as a "one-size-fits-all" product. The same form is used for everyone. All that gets changed is the names.
That can be a shame. It can work against you and your family. If any of those apply to you, go back to the lawyer who drafted your power of attorney and discuss it.
A customized power of attorney takes time. It takes discussion. You should expect to pay the lawyer three or four times as much for a customized power of attorney document. You and your family are worth it.
John E. S. Poyser is a lawyer with the Wealth and Estate Law Group. Contact him at 947-6801 or firstname.lastname@example.org