As much as we would wish otherwise, there may come a time when we are unable to manage our own affairs. That’s why having either a “durable” or “springing” power of attorney (POA) is widely considered to be a useful planning tool. In the event you become incapacitated due to a medical emergency or decline in cognitive functioning, either type of POA document can give another person the legal authority to act on your behalf and ensure that your personal matters are taken care of.
First, a quick primer for those unfamiliar with the associated terminology: The person who creates a POA document is known as the “principal,” while the person to whom POA authority is granted is the “attorney-in-fact” or “agent.” Moreover, a “durable” POA means legal authority is granted once the document is signed and remains in effect throughout the principal’s life. With a “springing” POA, legal authority begins only in certain circumstances or when a specific event occurs (i.e., the principal becomes incapacitated).
While POAs are practical and widely recognized, there are some instances where they will not be sufficient. Indeed, I learned this firsthand while serving as an attorney-in-fact for a beloved family member. Here are three notable examples you should be aware of.
IRS
The IRS has its own power of attorney document, Form 2848, which authorizes certain individuals to represent a taxpayer before the agency. While the IRS will technically recognize a non-IRS POA, the document must contain extremely specific information that is often not included in standard POA language. This requisite information, along with other instructions, can be found in IRS Publication 947 (“Practice Before the IRS and Power of Attorney”).
Additionally, in order for the non-IRS POA to be entered on the IRS’s Centralized Authorization File (CAF) system, a Form 2848 would still need to be completed and attached to the non-IRS POA. The CAF system is used by IRS employees to quickly verify whether a valid POA is on file, which can facilitate the attorney-in-fact’s interactions with the IRS. It also enables the IRS to automatically send copies of notices and other IRS communications to your attorney-in-fact if you specifically authorize this.
If you attach a Form 2848, there’s a particular twist you should be aware of: Even though your designated attorney-in-fact can be authorized to act on your behalf with the IRS for any period of time (which, on Form 2848, must be specified by the actual years, i.e., “2022 through 2042”), the maximum period that the IRS will enter into its system is three years, beginning on December 31 of the year that the IRS receives the form. So, for example, if you denote the years 2022 through 2042 on Form 2848, only the years 2022 through 2025 will be recorded in the system. If it is necessary to have the POA in the CAF system after the initial three-year period ends, a new Form 2848 would need to be submitted at that time. Also, if at any point the taxpayer (principal) is unable to sign a Form 2848, the attorney-in-fact can sign the form on the taxpayer’s behalf and then submit it along with requisite corroborating documentation proving the taxpayer’s incapacity.
When completing Form 2848, take care to follow the line-by-line instructions. For example, if you want to grant the attorney-in-fact the authority to sign returns on your behalf, you must not only mark a specific checkbox, but you must also include a statement in the lines provided below the checkbox. The Form 2848 instructions contain the exact language that needs to be used in the statement. Apparently, many people miss this, and in fact, I was one of them initially.
On a related note, if you are married, you do not necessarily need a POA for the sole purpose of signing a return for your spouse. If your spouse cannot sign the return due to a disease or injury, you can sign instead of him or her when given the oral consent to do so. You just need to write “by your name, wife (or husband)” beside your signature supported by a dated statement. The statement must include the form number of your return, the tax year you are filing for, the reason your spouse is not able to sign, and that your spouse has agreed to let you sign for him or her. It is important to remember to also sign for yourself.
Regardless, if you desire to use a non-IRS POA, you should know there is a possibility that the IRS representative you deal with will not know that you are allowed to submit your own document. Therefore, you should be prepared to reference IRS Publication 947 and, more specifically, the section titled “Non-IRS Powers of Attorney,” which appears on page 8 in the most recent version of the publication.
Finally, of course, all of the above pertains only to federal taxes. State tax authorities may have their own POA form and procedures, which you would need to verify.
Social Security
Unlike the IRS, the Social Security Administration (SSA) does not recognize POAs. Instead, when you need someone else to manage your Social Security benefits, you have to appoint this person as your “representative payee,” an SSA-specific designation that was created in 2018. You can elect up to three people as advance designees and rank them in order of priority; this allows the SSA to have an alternate point of contact if one or more of them are unavailable or unable to perform the role.
The process of becoming a representative payee is relatively straightforward. Your designee has to be interviewed at a nearby SSA office so that his or her suitability to act on your behalf can be evaluated, and then submit a corresponding SSA form along with documents to prove his or her identity. More details about becoming a representative payee, along with the associated duties and responsibilities, can be found in the “Representative Payee Program” section on the SSA’s website.
One potential obligation to be aware of is that a representative payee may be required to submit a periodic “Representative Payee Report” to account for the benefit payments received. As long as the beneficiary’s finances are well-organized, I can attest from my own personal experience that the reporting is relatively straightforward and can be easily done online. Moreover, spouses are exempt from this reporting requirement.
If your Social Security benefits are essentially on autopilot and being deposited directly into your bank account each month, you might be wondering why having a representative payee would be worthwhile to begin with. As a representative payee myself, here are two potential scenarios I can think of: First, if you are incapacitated and it is necessary to change the receiving bank account into which your benefits are deposited (due to a bank account security breach, for instance), your representative payee would have the ability to take care of this on your behalf. And second, if warranted, your representative payee could direct Social Security to make tax withholding adjustments on your benefits.
Medicare
While Medicare will recognize a POA, it has privacy protections that limit access to medical information by people other than the beneficiary. Therefore, Medicare requires additional written authorization from the beneficiary to share his or her medical information. This is accomplished by submitting Medicare’s Form CMS-10106 (“1-800-MEDICARE Authorization to Disclose Personal Health Information”).
As noted on the form, the beneficiary can specify the type of information he or she wants the individual to receive and has the option to specify a date on which he or she wishes the authorization to terminate, if the authorization is not granted indefinitely. The beneficiary also maintains the right to revoke the authorization at any time. In the event the beneficiary is unable to fill out the form due to incapacity, the person to whom he or she has delegated power of attorney can complete it as the beneficiary’s “personal representative,” for which there are straightforward corresponding instructions.
Bear in mind that additional authorizations are required for individual Medicare plans, such as Medicare Advantage, Part D prescription drug, and Medigap supplemental coverage. You would therefore need to contact the specific plan provider to obtain its requisite authorization form.
Finally, it is worth noting that the above privacy-related authorizations are entirely different from having a health care power of attorney (also called a health care proxy or health care surrogate). A health care POA is a separate authorization that allows someone to make health care decisions on your behalf if you are unable to do so.
In Sum
While a POA is usually enough to allow someone to oversee your affairs, don’t assume that this will always be the case. Hopefully, the above examples (which, again, are ultimately “tales from the trenches” based on my own personal experience) will help prevent you and/or your agent from learning the hard way, particularly during a potentially stressful time.
A final obligatory note: This article is for informational purposes only and should not be construed as legal advice. You should consult with a legal professional to make sure your needs are met given your own specific circumstances.
Abramson Financial Planning, LLC does not warrant the accuracy of the materials provided herein. Although the information provided is from sources we believe to be reliable, we do not guarantee the accuracy or timeliness of any information for any particular purpose. This information is for information purposes and does not constitute a recommendation for the purchase or sale of securities. Individual investment decisions should be made on the basis of each investor’s financial condition, suitability, and risk tolerance. Investments may be volatile and can involve the loss of principal. Past performance is no guarantee of future returns. Abramson Financial Planning’s employees may trade for their own accounts in any of the securities of issuers mentioned herein or in related investments. Abramson Financial Planning does not undertake to provide clients with tax, legal, or accounting advice, and clients are admonished to consult their own attorneys and accountants for determining the tax, legal, and accounting consequences of investments made on their behalf