Beneficiary vs. Power of Attorney: The Importance of Understanding Both for Same-Sex Couples

Naming beneficiaries is an integral part of estate planning for same-sex couples. It is important to dictate who should receive what benefits, and when. Beneficiaries do not have any legal authority, though, which means that preparing a power of attorney (POA) document is also crucial – especially for partners who choose not to marry. It’s a good idea to understand the differences between the two and how they work together to ensure you and your significant other are protected.

What is a Beneficiary?

A beneficiary is basically a recipient of something. It can be a person, multiple people, a charity, a trustee, or even your estate. Beneficiaries are typically designated on life insurance policies, annuities, and certain retirement plans – like 401(k)s and IRAs. They are also named in wills and trusts.

Beneficiaries should receive whatever funds or property the policy owner decides to disburse to them. Wills and some other beneficiary arrangements can create stipulations for the receipt of those assets (e.g. reaching a certain age or getting married). The funds or property that a beneficiary receives may also be subject to taxes, depending on the nature of the disbursement.

What is a Power of Attorney?

A Power of Attorney (POA) is a document that grants a person or organization certain powers over your affairs if you become incapacitated for some reason. This person or organization to whom you bestow power is called an attorney-in-fact or agent. There are several types of POA agreements (e.g., General POA, Durable POA, Health Care POA, etc.); each one has a unique purpose.

The agent you list in your POA document can make important, life-changing decisions on your behalf while you are alive. These decisions often center around financial obligations, medical directives, and business transactions.

It is critical to note that an agent’s power will cease upon your death; at that point, the executor of your will should be in charge of your affairs. Additionally, if a POA is written broadly enough, it may actually allow your assigned agent to change beneficiaries in your name. Because of this, it is essential to name a person or organization that you can trust.

Utilizing Both in Same-Sex Estate Planning

For LGBT couples who do not marry, it is imperative to utilize both beneficiaries and POA documents during estate planning. Naming beneficiaries can help ensure that your money goes where you want it to go upon your death. A POA, on the other hand, can authorize your partner (or another named agent) to make decisions on behalf of your personal interests while you are alive, but no longer competent.

Together, the agent named in your POA and the beneficiaries you select can protect your legacy as a whole.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. This information is not intended to be a substitute for individualized tax, legal, or investment advice. We suggest that you discuss your particular situation with a qualified tax, legal, or financial advisor.