Why Must a Durable Power be Drafted Carefully?

However, a power of attorney is useful only if it works as intended. The likelihood of success is far greater if the appropriate professional advice is sought.

Because the possibility of abuse exists when the agent is managing the principal's financial assets, financial intermediaries such as banks, stock brokers, and insurers are often hesitant about complying with broad powers granted to an agent.

If court intervention is required, it will be costly and will perhaps further limit the flexibility of the agent to use the durable power since the courts are likely to construe the power narrowly.

Drafting the document so that the powers granted the agent are very specific is helpful in persuading third parties to enter into transactions with the agent. The more specific the language, the more likely it is that third parties will honor the power because the intent of the principal is expressly stated in the document.

Another important point is the effectiveness of the exercise of a power of attorney for tax purposes. The IRS has successfully challenged and denied the annual gift tax exclusion for gifts made under broad-form powers of attorney in which the agent was not expressly empowered to make the gifts.

A similar result should occur if the agent attempts to disclaim property inherited by the principal. The IRS may treat the disclaimer as invalid for tax purposes.