by Peter Klenk, Esq.

When you execute a General Durable Power of Attorney you name a person as your Agent and give that person broad legal powers to act in your place.  Among many powers, the person is typically given power to access your accounts, pay your bills and sell your property.  Another typical power given to the Agent is the power to make gifts on your behalf.

This power was recently the focus of The Estate of Slomski vs. Thermoclad Co., 956 A.2d 438 (Pa. Super. 2007), where a deceased widower several months before his death named his mother as Agent under a General Power of Attorney.  His mother used that power to change the beneficiary designations on life insurance and retirement plans from the deceased’s children to the deceased’s siblings (his mother’s other children).  The decedent’s children objected to these changes and the court examined the Power of Attorney to determine if the mother was given the power to make such broad changes.

The court reasoned that there are three options for gifting powers in a power of attorney.

First, the document can empower the agent to make Limited Gifts, as defined by statute in Section 5603(a)(1). Limited Gifts are defined by the statute to mean the agent can make gifts only to the principal’s spouse, issue and a spouse of the principal’s issue, and only to the extent the gift qualifies for the annual gift tax exclusion ($13,000.00, or $26,000.00 if gift splitting with the principal’s spouse in 2009) or for such person’s tuition or medical care that qualifies under section 2503(e) of the Internal Revenue Code;

Second, the document can empower the agent to make Unlimited Gifts, which as it sounds, gives the Agent unlimited gifting powers; or

Third, the principal can craft a gifting clause that lists specific types of gifts and the Agent is prohibited from moving beyond those specific terms.

In The Estate of Slomski, the principal gave his mother the power “to make gifts.”  He neither used the terms “Limited” nor the term “Unlimited”.  The court reasoned that as the specific terms were not used, the power of attorney fell into the third category; gift powers that must be specifically listed.  As changing beneficiary designations on life insurance and retirement plans were not listed powers, the court found that the Agent did not have these powers and ordered the assets returned to the children.

This case emphasizes that a General Durable Power of Attorney is a document that must be treated carefully, and close attention must be given to the powers given to the Agent.