“Many older adults enjoy giving money during their lifetime to family members or donations to a religious or charitable organizations.”
Grandparents may make a generous gift to a grandchild to help with college expenses or an adult child who is struggling. The size of the gifts is often directly related to the giver’s financial resources, life circumstances and their relationship with the recipient. However, this tendency toward generosity can come to a sudden stop if the giver becomes incapacitated, explains a recent article titled “Estate Planning: Gifts and donations by agents and trustees” from Lake County News.
Authority to make gifts can be included in a person’s trust to permit the trustee to make gifts using assets owned by the trust. A person’s power of attorney can be drafted to permit the agent to gift using assets owned by the individual if this gifting authority is expressly stated and authorized. It may not be implied based on a person’s past behavior or informal comments.
For example, a commonly used express giving provision in power of attorney is language like this: “The Agent is authorized to make gifts on the Principal’s behalf to the Principal’s children, any of their issue, or both, to the full extent of the federal annual gift tax exclusion…and for such purposes, to remove the Principal’s assets from any revocable trust of which the Principal is a grantor.”
This language, which must be created in alignment with state law, is an example of how the agent may be given discretion to make gifts to children and grandchildren, up to the annual federal gift tax exclusion per person. The agent may request assets from the principal’s trust to fulfill these gifts.
Giving should not be confused with a person’s legal duties of support to a spouse or dependent minor children. A Power of Attorney and a trust can be used to meet a person’s legal duty of support during the time of their incapacity.
Some people provide financial support to family members, which is not required by law.
For example, a parent may wish to pay a disabled child’s living expenses in coordination with any special needs planning. It’s extremely important in this situation for planning to be in place long before it is needed. If support is to continue when the parent becomes incapacitated, the parent’s estate planning documents must provide for continued support, otherwise the child will lose access to those resources.
An agent under a power of attorney and a trustee according to the directions of the trust document are both fiduciaries, meaning they are legal representatives with duties and obligations to put the interest of the individual ahead of their own.
Any action taken by the agent or the trustee must meet the standard of the fiduciary. The actions must be reasonable, in good faith and consistent with any instructions specified in the document. An agent or a trustee may not make imprudent or unjustified gifts which might jeopardize the financial welfare of the principal.
An important exception is if the agent or trustee is expressly authorized to gift assets in order to qualify the principal as eligible for needs-based government benefits.
There are many good reasons to make gifts during one’s lifetime. It is sometimess necessary for those gifts to continue during incapacity. Talk with an estate planning attorney to ensure that loved ones are protected regardless of what unexpected events should occur.
Reference: Lake County News (Dec. 31, 2022) “Estate Planning: Gifts and donations by agents and trustees”