Tailoring Hot Powers

When the statutory durable power of appointment form changed in 2017, one of the major changes was the introduction of “hot powers”, a list of powers that the legislature deemed so extensive that a principal needed to affirmatively indicate her intention to grant them.  An agent is not able to exercise one of the hot powers unless the principal initialed them.  The statutory hot powers include changing inter vivos trusts, making gifts, creating or changing rights of survivorship, creating or changing beneficiary designations, and delegating the agent’s authority to another person.

Durable powers of attorney require a careful balance: avoiding guardianship and allowing for straightforward management of legal and financial matters for an incapacitated individual is incredibly important, but the more authority granted, the greater the potential harm if the power is abused.  The hot powers are some of the most dangerous if abused, largely because most of them would allow an agent to divert property away from the principal’s estate plan: creating and funding a revocable trust with different beneficiaries from the will, for instance, or adding and removing beneficiaries of a retirement plan.

Consider customizing the hot powers to find a middle ground.  At Karisch Jonas Law, after taking into account the client’s individual situation, we might limit the “hot” gift-giving power to a list of approved individuals, or describe a restricted set of actions the agent can take with respect to revocable trusts. 

For (potentially) nonprobate assets such as bank accounts, retirement plans, and life insurance policies, in appropriate cases we often alter the two relevant powers as follows:

____ Create or change Eliminate rights of survivorship

____ Create or change a beneficiary designation only to be consistent with the following disposition: (list client-approved beneficiary designation language)

With these changes, the agent retains the ability to “clean up” assets that were not properly addressed in the estate planning process, such as a joint account with right of survivorship benefiting only one of several children.  By giving the agent the power to eliminate the right of survivorship, the principal allows the agent to make the necessary change to prevent an unintended gift from being made outside the will, but does not allow the agent to divert property away from the will.  (Of course, this solution does not allow the agent to engage in probate-avoidance planning by adding survivorship provisions to probate assets.) 

Similarly, if a life insurance policy from the principal’s first job names the principal’s former boyfriend and the principal never got around to changing the designation before becoming incapacitated, the agent would be able to amend the beneficiary designation to be consistent with provisions the principal approved in the durable power of attorney.

Using hot powers can be a powerful but dangerous addition to a durable power of attorney.  It requires careful consideration and an experienced estate planning attorney’s assistance.  In some cases, leaving the hot powers broad is the best approach (probate avoidance planning, for example), while in others, the powers should be wholly eliminated.  For the less clear-cut situations, at Karisch Jonas Law we think that creative drafting can help strike a balance between unwieldy black and white options.