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The ‘hot powers’ of a financial power of attorney

| Jul 1, 2020 | Powers Of Attorney |

A financial power of attorney is a crucial legal tool for anyone with even modest monetary considerations. With a financial power of attorney, you – the principal – name an agent to handle financial and business transactions on your behalf.

It is a role that requires trust, as agents are often granted fairly wide latitude to handle financial tasks. But an agent cannot act with impunity. They must act based on your preferences and wishes. Some decisions, however, are so notable they are automatically prohibited unless otherwise specified.

The nine ‘hot powers’

Under Colorado law, there are nine powers a principal must explicitly give to an agent. These “hot powers,” as they are called, cannot be acted upon by the agent unless specifically granted permission by the principal in the power of attorney documents. These hot powers are:

  • Making a gift
  • Creating or changing rights of survivorship
  • Creating or altering a beneficiary designation
  • Creating, amending, revoking or terminating a trust
  • Delegating any authority granted by the power of attorney
  • Waiving the principal’s right to be a beneficiary of a joint and survivor annuity
  • Exercising various powers held by the principal in a fiduciary capacity
  • Disclaiming or releasing property or a power of appointment
  • Exercising any powers, rights, or authority as a partner, member, or manager of a partnership

Without express permission, an agent simply lacks the authority to act on any of these matters.

There are additional restrictions on the first three hot powers. An agent cannot use those powers unless the principal is their parent, grandparent, spouse, sibling or child – regardless of if the language is included in the power of attorney forms.

Getting it right

The importance of a power of attorney – whether financial or medical – cannot be understated. These documents give tangible power to another individual, to care for matters when the principal either does not want to do so or is incapacitated. It is vital to pick the right person for the job and create a power of attorney free from ambiguity.

While the law provides some built-in safeguards, the best way to protect yourself from potential misconduct is to carve out a power of attorney that says exactly what you intend for it to say. No more, no less.

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