Gifts by Agents and Trustees

Tis the season to be giving. Many older adults enjoy giving money during their lifetime to family members or donations to a religious or charitable organizations. For example, a grandparent may make a generous holiday gift of money to a needy grandchild in college or to an adult child who is struggling in-between jobs. The magnitude of such giving is usually governed by a person’s financial resources, life circumstances, and generosity.

This natural tendency to bestow gifts, at holidays and birthdays, can grind to an abrupt halt when someone becomes incapacitated, such as when a person becomes demented. That said, anyone who wishes to continue a pattern of gifting, or otherwise provide for possible gifts, in the event of their own future incapacity, should plan ahead by including appropriate gifting provisions in their estate planning documents.

An express gifting authority can be included in a person’s trust to allow the person’s trustee to make gifts using assets inside the trust and also included in a person’s power of attorney to allow the person’s agent to gift using assets outside of the trust. Such gifting authority must be expressly stated written authorization and cannot be implied based on a person’s past behavior.

For example, a commonly used express gifting provision in a power of attorney is, “the Agent is authorized to make gifts on the Principal’s behalf to the Principal’s children, any of their issue, or both, to the full extent of the federal annual gift tax exclusion … and, for such purposes, to remove the Principal’s assets from any revocable trust of which the Principal is a grantor.”

The foregoing authority allows the Agent the discretion to make gifts to the principal’s descendants (e.g., children and grandchildren) up to the current annual federal gift tax exclusion amount, presently $16,000, each year, per donee. The Agent may request assets from the Principal’s trust to fulfill the gifts.

Thus, in 2022, if the principal had one child and two grandchildren, the agent may gift up to $16,000 to each and $48,000 altogether. In 2023, the annual gift tax exclusion amount is $17,000.

Gifting is not to be confused with a person’s legal duties of support to a spouse or to dependent minor child(ren). A power of attorney and a trust may, and should, also provide for meeting a person’s legal duty of support during their incapacity.

However, some people provide financial support to family members which is not legally required. For example, a parent may pay a disabled child’s living expenses. In such cases, whether such support continues if the provider becomes incapacitated depends on whether the provider’s estate planning documents provide for continued support that is not legally required.

An agent under a power of attorney and a trustee under a trust instrument are each a fiduciary (i.e., a legal representative with duties and obligations). Any actions, including discretionary gifts, taken by an agent or trustee must agree with their legal duty and obligations as a fiduciary.

Thus, any exercise of fiduciary discretion must be reasonable, in good faith, and consistent with any instructions provided in the instrument. Thus, an Agent, or a Trustee, ordinarily should not make imprudent or unjustified gifts that might jeopardize the financial welfare of the principal or settlor. An important exception is when the agent or trustee is expressly authorized to gift assets away in order to qualify the principal or settlor as eligible for needs-based government welfare benefits (e.g., SSI and Medi-Cal).

There are many good reasons to give during one’s lifetime. Sometimes it may be appropriate and desirable that such gifting continue even during one’s incapacity. If so, then plan ahead. Happy Holidays.
The foregoing discussion is not legal advice. Consult an attorney.

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.