A power of attorney is an essential component of a comprehensive estate plan. However, there are at least two important situations when the power of attorney (POA) will not be recognized and followed.
The IRS and Social Security Administration don’t recognize traditional POAs, explains Forbes’ recent article entitled “Two Times When Your Power Of Attorney Isn’t Going To Work.”
The IRS requires the use of its Form 2848, “Power of Attorney and Declaration of Representative” before it will let anyone act on your behalf. This form is required when an agent, even a relative, tries to handle your tax matters, when you are not able to so.
One of the requirements of Form 2848 is that it requires you to state the tax matters and years for which the agent is authorized to act. Form 2848 also requires you to list the type of tax, the IRS form number and the year or periods involved. That is different from a traditional POA to handle financial matters, which frequently has a blanket statement allowing the agent to take a broad range of actions on your behalf in certain matters.
For a married couple that files joint tax returns, each spouse must also separately complete and sign a form. They cannot simply execute a joint form.
Technically, the IRS could accept other POAs, as indicated by the instructions to Form 2848. However, as you can see a POA must meet all the IRS’ requirements to be accepted.
The Social Security Administration is much the same. When you need someone to manage your Social Security benefits, you contact the Social Security Administration and make an advance designation of a representative payee.
This lets you name one or more people to manage your Social Security benefits. The Social Security Administration then is required to work with the named individual or individuals, in most cases.
A person who already is receiving Social Security benefits may name an advance designee at any time. A first-time claimer can also name the designee during the claiming process.
This designee can be changed at any time.
If you do not name any representatives, the Social Security Administration will designate a representative payee on your behalf, if it determines that you need help managing your money. Relatives or friends can apply to be representative payees, or the Social Security Administration can select someone.
Reference: Forbes (Jan. 28, 2021) “Two Times When Your Power of Attorney Isn’t Going to Work”