Charitable Gifts Made Under a Power of Attorney
A Power of Attorney, if used carefully, is a very important estate planning tool. This legal document is commonly prepared to provide for situations where a person cannot manage his or her own financial and legal affairs. By way of a Power of Attorney a person (the “Donor”) gives another person or a Trust Company (the “Attorney”) the power to deal with all, or a limited number of, the Donor’s legal and financial affairs. In order to make a valid Power of Attorney, the Donor must be of sound mind and not be under any duress. The document must be in a certain form and be properly signed and witnessed.
An Attorney must act honestly and in good faith, exercise the care diligence and skill of a ‘reasonably prudent person’ and act within his/her authority granted under the Power of Attorney. Further, the Attorney has a general duty to act in the adult’s best interests, taking into account the adult’s current wishes, known beliefs and values.
An Attorney is also allowed to make a charitable gift or gifts, from the adult’s property, if permitted by the Power of Attorney or if the adult usually made such gifts and there would be sufficient property remaining to meet the adult’s needs, as long as the total value of all gifts, loans and charitable gifts made by an attorney in a year are not more than 10% of the adult’s taxable income for the previous year OR $5,000.00, whichever is the lesser of the two.
It is a large responsibility at the best of times to be asked to act as someone’s Attorney. With the additional responsibility of being able to make charitable gifts on behalf of a potentially mentally incapacitated person in accordance with their “current wishes, known beliefs and values” is often extremely difficult, especially if the Attorney didn’t know the Donor that well when he/she did have capacity. It can be a huge burden on the Attorney to decide whether or not to give to charity on behalf of the Donor AND which charity or charities to donate to.
Burden of these decisions aside, Powers of Attorney are a fundamental tool in planned giving. They allow the Attorney to keep a planned giving strategy viable while the Donor is still alive, but incapacitated. If the Attorney was not permitted to make charitable donations, a comprehensive tax strategy using charitable gifts to reduce estate taxes may collapse.
This is provided as information ONLY; it should NOT be construed as legal advice. You should consult with a lawyer to provide you with specific advice for your own situation. For more information on estate planning/incapacity planning and to discuss your specific circumstances, please contact Vanessa DeDominicis on 250-869-1140 or firstname.lastname@example.org. Vanessa practices in the area of Wills and Estates at Pushor Mitchell LLP in Kelowna and would be more than happy to assist you.