Many of my clients come in with a "durable" power of attorney, believing they are all set with it. However, after carefully reviewing it, I invariably have to recommend they need a new one. Why is that?

First of all, if the power of attorney is more than five years old, many financial institutions may simply refuse to honor it, believing that it may have been revoked.

You may not realize it, but some states even provide that any person who arbitrarily or without reasonable cause refuses to comply with the directions of the agent named in a valid power of attorney will be liable for costs, expenses and attorney's fees to appoint a conservator or go to court to enforce the power of attorney.

Unfortunately, even if the law says they must follow the power of attorney, it could be a time-consuming and expensive proposition to force them to do so. A better idea is simply to sign an updated one every few years.

Second, most power of attorney documents do not permit gifting by the agent named in the document, or if they do, it is handled all wrong! Some documents limit gifts to the federal gift tax annual exclusion (currently $12,000 per person per year) or prohibit gifts to the person serving as the agent. While those provisions may be useful for a wealthy client, they can really hinder effective Medicaid planning. In fact, it would be better if the document said nothing at all about gifting than include such limitations, because it's always possible to go to court to get permission to make large gifts for Medicaid planning purposes, but once the judge sees those limits in the power of attorney document, he might not permit it.

So what are the "must have" provisions to include in a durable power of attorney? It should specifically address gifting for Medicaid planning purposes. It should permit gifts to the agent, perhaps by someone other than the agent. It should include the power to purchase a "Medicaid annuity" and make a loan secured by a Medicaid-friendly promissory note. It should include at least one successor or back-up agent. It should include many powers you think you don't need but may well need in the future!

In short, the cheap or free forms you get at the office supply store or online are false bargains. Spend the small fee it costs to get a good power of attorney, one that includes the important provisions discussed above. In the long run, it could save your family thousands of dollars. And that's a good thing!