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Including Gift Authority in a Power of Attorney

Including Gift Authority in a Power of Attorney

Giving a gift

Gift provisions in powers of attorney limit agents from making gifts if such ability is not desired. All powers of attorney should include specific gift authority clauses to provide the necessary authority to the agents. Failure to include these provisions could subject the agent to action for making an inappropriate gift or deprive the estate of property that was intended for another person or purpose.

Issues with Failing to Include Gift Authority

A recent court case examined these issues—the Court appointed family members as guardians for their aunt, who possessed about $3 million in assets. The guardians asked for court approval for a series of gifts made between 2015 and 2017, totaling $450,000. The aunt’s income exceeded the gifts and accommodated them, but the Court denied the request because a 2006 provision in the aunt’s power of attorney limited gift authority to the federal gift tax annual exclusion.

The outcome, in this case, highlights the pros and cons of gift authority clauses. If the aunt’s power of attorney did not include this gift authority, her guardians could have looted her estate and left her destitute. However, it is possible these gifts were genuine as the aunt’s estate was able to cover the gifts comfortably. Therefore, since a power of attorney was rigidly constructed, the guardians could not make these gifts even though the aunt may have intended it.

Gift Tax Exclusion

A core issue for powers of attorney is dealing with the federal exclusion for gifts. The federal government excludes annual transfers of gifts totaling less than the exclusion amount from taxable income. Currently, the exclusion amount is $15,000 per person or $30,000 for a married couple. It is possible to avoid the gift tax if the person making the gift files a Form 709 with the Internal Revenue Service and applies the gift to his or her Gift Tax Exemption. Gifts over the exclusion reduce the gift exemption, which starts at $11.58 million.

Legislative Uncertainty

The problem is exacerbated because if further legislative action isn’t taken by 2025, the gift exemptions will end and revert to 2010 levels. Gift authority provisions must be drafted with these possibilities in mind to account for possible changes in the tax law but also to grant necessary flexibility in managing the estate.

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