3 Keys to Protect Your Assets From Greedy Heirs

A well-thought-out estate plan could save your family thousands of dollars in taxes and protect your financial interests if you become incapacitated. But some widely used estate-planning tactics make it easy for unscrupulous family members or financial advisers to pick your pocket.

Power of attorney for finances. A durable power of attorney for finances gives a spouse, adult child or other person you designate the authority to manage your money if you're unable to handle your affairs, without the hassle of going to court. In the right hands, it will protect your financial interests, says Sally Hurme, an elder-law lawyer for AARP. But in the wrong hands, she says, it's a license to steal.

Depending on how the document is written, your agent could write checks against your bank account, buy and sell securities for you, and collect your Social Security and pension payments. Give careful consideration to who will act as your agent and how broad that person's authority should be, says Hurme. AARP recommends consulting an elder-law lawyer.

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Joint bank accounts. A co-owner of your bank account can make deposits and write checks to pay your bills if you're out of commission -- and could also clean out your account, says Gregory French, an elder-law lawyer in Cincinnati. Another drawback: When you die, the account will automatically revert to the joint owner, even if that conflicts with your will, he says.

A less risky alternative is a convenience account, sometimes known as an agency account. It gives whoever you designate the authority to write checks, make deposits and perform other financial duties, but only for your benefit. When you die, the money in the account goes to the estate.

Financial gifts. In 2012, up to $5.12 million per person is exempt from estate taxes (anything above that amount is taxed at a 35% rate). The exemption is scheduled to drop to $1 million in 2013, with a 55% tax rate on anything over that amount. But that presumes Congress won't step in (see Last-Chance Tax Savings).

Richard Behrendt, director of estate planning for Robert W. Baird, a wealth-management firm, worries that talk of the much lower estate-tax exemption will lead some seniors to give away money they might need for living expenses or long-term care. "Only give what you're sure you won't need for your remaining time in this world," he says.

In 2012, you can give up to $13,000 to as many people as you want, and so can your spouse, without filing a gift-tax return. But before you start writing checks to reduce the size of your estate -- or succumb to pressure from your children to make financial gifts -- consult an estate-planning lawyer.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.