Picture a second marriage that has lasted twenty years. Each spouse brought children from an earlier marriage. The wills are drafted, the trust is funded, and the couple has reviewed the plan more than once. The largest single asset either of them owns is a retirement account. Each has named their own children from the first marriage as the beneficiaries of their account.
Years later, one spouse's health declines. The other steps in under the durable power of attorney and begins managing the accounts, which is exactly what the document was signed to allow.
Here is the question that almost never comes up at the signing table. Does that agent have the authority to call the custodian and change the beneficiary designation on the retirement account? In other words, can one spouse redirect the other's retirement account to themselves?
In Colorado and Wyoming, the answer turns on language in the power of attorney that most people have never read.
Before going further, it is worth saying plainly what that document is for. A power of attorney exists so that somebody can take care of you when you cannot take care of yourself. That is its whole purpose, and most people who accept the job do it faithfully, often at considerable cost to their own time and peace of mind. Nothing in this article is a warning about your spouse.
What a second marriage adds is that the same document asks one person to hold authority over what another set of children has been told to expect. That is a heavier thing to hand someone than it appears on the day it is signed, and it is better decided together, in advance, than discovered afterward.
Beneficiary designations run on their own track
A will governs property that passes through probate. A revocable trust governs property that has been titled into it. A retirement account with a valid, living beneficiary designation passes to the named beneficiary by contract with the custodian, and neither the will nor the trust has anything to say about it.1
That is normal and usually convenient. It also means the beneficiary form is doing a great deal of the work in the average plan. For most families, the retirement accounts and the life insurance together represent more value than everything the will controls, so the clause that matters most sits on a one-page form in a custodian's file rather than in the binder on the shelf.
What a power of attorney actually authorizes
Colorado and Wyoming have both adopted the Uniform Power of Attorney Act, and both separate two kinds of authority.
The first kind is ordinary financial management. Pay the bills, deal with the bank, file the tax return, manage the rental property. A general grant of authority covers that.
The second kind is a short list of powers that reach the disposition of property, including making gifts, creating or revoking a trust, changing rights of survivorship, and creating or changing a beneficiary designation. An agent may exercise those only if the power of attorney expressly grants the authority.2
The default, in other words, is protective. An agent operating under a general grant does not have the power to rewrite a retirement account designation, and a custodian following the statute should not accept the change.
Colorado's statutory form says so about as plainly as a statute can. The special powers appear as a separate list, the principal has to initial each one to grant it, and the form carries a warning that granting any of them gives the agent authority to take actions that could significantly reduce the principal's property or change how it is distributed at death.3
Where the protection gets thin
Two things happen in practice that are worth understanding.
The first is that the authority to update beneficiaries often is granted. Sometimes that reflects a real decision. An agent may well need to update a designation after a named beneficiary dies, or to finish funding that was left incomplete, and a plan that ties the agent's hands entirely can create its own problems during a long incapacity. Other times the line was initialed because a form was being completed and nobody paused on it. The grant is a decision either way, and it is worth knowing whether you made it deliberately.
The second is narrower and, in a blended family, more consequential. Even where the authority has been granted, both statutes limit an agent from using it to create an interest in the agent's own favor. That limitation reaches an agent who is not an ancestor, spouse, or descendant of the principal.4 A spouse serving as agent sits outside it, as do the principal's own parents and children.
The result is a structural quirk. In a second marriage, the person most likely to be holding the power of attorney is a spouse, the assets most likely to be redirected are retirement accounts, and the people whose interest is exposed are usually the children of the earlier marriage, who have no seat at the table and often no knowledge that a change has been made.
There is a second reason to settle this while everyone is healthy, and it has nothing to do with distrust. An agent handed broad authority and no instruction is exposed. Years later, decisions that touch those accounts can be read by stepchildren as self interested, including the decisions that were careful and correct, and the agent has no document to point to. Saying in the power of attorney what the agent may and may not do settles the question before anyone has to argue about it. The clause protects the person holding the power about as much as it protects the people counting on it.
I want to be careful not to overstate this. An agent still owes real fiduciary duties: to act within the scope of the authority granted, in good faith, in accordance with the principal's reasonable expectations, and loyally for the principal's benefit.5 A redirection of this kind would be attackable. But it would be attacked after the fact, usually after the principal has died or lost the capacity to explain what was intended, by children who learn about the change when they go to claim an account. Those duties matter, and they operate through litigation, which is a slower and more expensive remedy than a clause that prevented the problem.
What the custodian will do is unpredictable
Financial institutions maintain their own procedures for accepting a power of attorney. Some require their own form. Some take weeks to review a document. Some decline altogether and refer the agent to a court proceeding.
That picture has been shifting. We revisit our own power of attorney form regularly, largely on the strength of what clients tell us happened when their agent actually walked into a branch or called a custodian's service line, and those reports have grown less consistent in recent years. Institutions appear to be reviewing these documents more closely than they once did, and they are not all reviewing them the same way.
The consequence runs in both directions. A custodian's caution will occasionally block a change a family would not have wanted, which is cold comfort, because the same caution blocks changes an agent legitimately needs to make, at the point when the principal is least able to sort it out. Relying on a custodian's back office to enforce your intentions is not a plan, and neither is assuming it will cooperate with your agent.
The drafting response
The place to address this is the power of attorney itself, while it is being drafted. Several approaches work, and they differ in how tightly they close the door:
Leave it out. Do not grant the authority to change beneficiaries. The statutory default then governs, and the agent has no power to change a designation.
Prohibit it expressly. Say in the document that the agent may not create or change a beneficiary designation. This does more than silence does, because it tells a custodian's reviewer, and the agent, what the answer is without requiring either of them to know the default rule.
Grant it for a stated purpose. The authority can be narrowed to what the family actually anticipates, such as naming the successor trustee of the trust as beneficiary, or replacing a beneficiary who has died, without opening the door to a general redirection.
Separate the roles. One agent handles day to day financial management while a different person, or a co-agent requirement, controls the powers that change disposition. This adds friction, and for some blended families the friction is the point.
Which of these fits depends on who the agent is, what accounts exist, how long an incapacity is likely to last, and what the plan is trying to protect. This section of the power of attorney is treated as boilerplate far more often than it deserves.
In our own practice it gets an individual decision in every plan. We drafted for years from a heavily customized version of the Colorado statutory form, and we now work from specialized estate planning drafting software rather than a word processing template. The practical difference is that the document gets assembled power by power, which turns the special powers into a set of choices to walk through with the client instead of a block of text to accept or strike. Who should be able to change a beneficiary designation, and in what circumstances, is a question the attorney works through for each plan, alongside the choice of agent itself.
There is also the question of naming a trust as the beneficiary of a retirement account, which comes up constantly in this conversation. That is a real planning tool with real complications, including how quickly the account has to be paid out under current retirement account rules and how the trust must be drafted to qualify. It is a separate subject and we will take it up separately.6
Three things worth checking
None of this requires a meeting to start on.
Find your power of attorney and turn to the section listing specific or special powers. See whether the beneficiary designation line was granted.
Ask yourself whether that answer is the one you want, given who your agent is and who your beneficiaries are. For a first marriage with shared children, a broad grant is often fine. For a blended family, it deserves a deliberate decision.
Pull the current beneficiary designation on every retirement account and life insurance policy and confirm it says what you believe it says. Designations drift, and a plan review that never reaches the custodian's records is only half a review.7
An estate plan is a set of documents that have to work together, and what they are for is letting the people you love take care of you, and of each other, at a time when nobody involved is at their best. The power of attorney is the one most often signed with the least attention, and it is the one that decides who holds the pen while you cannot. In a blended family, it is worth the extra half hour.
- For a fuller walk through aligning your trust with deeds, account titling, and beneficiary forms, see How to Coordinate Your Colorado or Wyoming Living Trust With Property Titles and Beneficiary Designations in this series. ↩
- Colo. Rev. Stat. § 15-14-724(1)(d); Wyo. Stat. § 3-9-201(a). Colorado's introductory language conditions these powers on the power of attorney expressly granting the authority and on the exercise not being "otherwise prohibited by another agreement or instrument to which the authority or property is subject." That second condition matters here, because a retirement account is also governed by its custodial agreement and, for an employer plan, by the plan document. ↩
- Colo. Rev. Stat. § 15-14-741 (statutory form power of attorney). The form states that the agent "MAY NOT do any of the following specific acts for me UNLESS I have INITIALED the specific authority listed below," and cautions that "[g]ranting any of the following will give your agent the authority to take actions that could significantly reduce your property or change how your property is distributed at your death." "Create or change a beneficiary designation" is one of the listed items. A power of attorney drafted for a client does not have to use the statutory form, and most do not, but the same structure of general authority plus separately granted special powers is standard. ↩
- Colo. Rev. Stat. § 15-14-724(2): "Notwithstanding a grant of authority to do an act described in subsection (1) of this section, unless the power of attorney otherwise provides, an agent that is not an ancestor, spouse, or descendant of the principal may not exercise authority under a power of attorney to create in the agent, or in an individual to whom the agent owes a legal obligation of support, an interest in the principal's property, whether by gift, right of survivorship, beneficiary designation, disclaimer, or otherwise." Wyo. Stat. § 3-9-201(b) is materially the same. Note the phrase "unless the power of attorney otherwise provides," which means a drafted document can extend the limitation to a spouse or child who would otherwise fall outside it. ↩
- Colo. Rev. Stat. § 15-14-714 (agent's duties), which requires an agent who has accepted appointment to act within the scope of authority granted, in good faith, in accordance with the principal's reasonable expectations, and, among the default duties, loyally for the principal's benefit and with the care, competence, and diligence ordinarily exercised by agents in similar circumstances. ↩
- Naming a trust as the beneficiary of a retirement account raises payout timing questions under the SECURE Act and requires the receiving trust to be drafted with that role in mind. A trust that works well for real estate and investment accounts is not automatically suited to receive an IRA. We will take that subject up on its own. ↩
- On why a revocable trust is meant to function during your lifetime rather than sit in a binder until death, see Stop Thinking About Your Trust as a Death Document. On choosing the people who will hold these roles, see How to Choose a Trustee in Colorado or Wyoming. ↩