Here’s a question to ponder: What would happen to your finances if you were no longer physically or mentally able to manage them? If you become incapacitated in some way, whether by accident or illness, do you have anyone who could handle your affairs?
There’s more to consider than just your finances: What about your health itself? What would happen if you were no longer able to communicate or make decisions about your own healthcare? Could anyone make these decisions for you?
From a legal standpoint, the answer to both questions is “no.” No one can make financial decisions or medical decisions on your behalf—unless you appoint someone to do so in an official document called Power of Attorney. Without this documentation in place, if you become incapacitated or mentally incompetent, everyone else’s hands are legally tied when it comes to your assets and your health. As you can imagine, this can lead to all sorts of issues, including court battles, withheld medical treatments (or treatments you wouldn’t have wanted), and even financial ruin.
Like death itself, no one really likes to talk about these issues—but if you want to cover all bases in your estate plan, you must consider the possibility of incapacitation along with the inevitability of death. Most aspects of your estate plan (including the execution of your will) are triggered when you die. But how do you protect your estate if you’re still alive but unable to manage your own affairs? This is where the Power of Attorney comes in.
What Is a Power of Attorney?
A Power of Attorney (POA) is a legal document that authorizes another person or organization (called an agent or attorney-in-fact) to manage your affairs, make decisions, sign documents and otherwise conduct business on your behalf. This authority may be as broad or narrow as you specify, but in most cases the purpose of POA is to make sure your business, finances and/or health are properly managed if you become unable to handle them yourself.
In the context of estate planning and end-of-life planning, you’ll want to consider appointing two specific powers of attorney, which may or may not be the same person: A financial power of attorney and a healthcare power of attorney, which in our practice we call an Advanced Healthcare Directive.
Financial power of attorney
Your financial POA can act on your behalf to make a wide range of decisions related to your life and/or business, generally for the purpose of maintaining or growing your estate. He/she may be responsible for any or all of the following:
- Paying bills
- Conducting banking transactions
- Managing investments
- Preparing, filing and paying taxes
- Managing or selling property
- Signing contracts and other paperwork
- Other tasks related to your personal or business finances
Advanced Health Care Directive
In a very real sense, healthcare decisions are a matter of life and death. If you can no longer make conscious choices regarding your own treatment, proxy appointed in an Advanced Healthcare Directive can make these decisions on your behalf. This isn’t to be confused with a living will which basically documents your wishes regarding end-of-life treatment or resuscitation. However, a Proxy can enforce your living will, if necessary. Specially, a proxy can:
- Consent to or deny treatment options on your behalf, in alignment with instructions in your living will (if you have one)
- Make decisions about where you receive treatment and who will treat you
- Decide when to begin or cease certain treatment options
- Consult with your physicians about your condition and treatment options
- Go to court on your behalf, if necessary, to enforce your healthcare rights
When POA Begins, and When It Ends
Unless you revoke it or the document states otherwise, the power of attorney ceases to have any effect after your death. Then, your agent stops making decisions for you and your estate plan kicks in. Determining when POA begins depends on which type of POA you set up.
- A Durable Power of Attorney goes into effect immediately upon signing and expires upon your death. (You can always revoke this POA as long as you are competent.)
- A Springing Power of Attorney is triggered by a specified date, event or condition (in most cases, a declaration of incompetence).
- A Non-Durable Power of Attorney goes into effect immediately (usually for a specific purpose), and expires when you die, revoke it or become incompetent or at the conclusion of the transaction for which it was created.
In estate planning situations, the two POAs most often used are durable power of attorney and springing power of attorney. For example, if you are already facing the possibility of incapacitation and need someone to take over management of your finances, you may want to invoke a durable POA which goes into effect as soon as you sign it. If you simply want to prepare for the possibility, you might choose a springing POA designed to start when you are declared incompetent. Each type of power has its own benefits and drawbacks and a detailed discussion with your attorney should be had to make those decisions.
Since the agent you choose will likely have the authority to make potentially life-altering decisions for you, be certain it’s someone to whom you could literally entrust your life, finances and overall wellbeing. A financial POA should have great attention to detail, be trustworthy with finances and understand your way of thinking regarding your estate. Likewise, a proxy should know your wishes for end-of-life care and be willing to protect your interests within an often-flawed healthcare system—fiercely if necessary.
You may never need someone to take over management of your estate or your healthcare—many people never do. However, if you have been recently diagnosed with a debilitating illness; if you’re finding more and more difficult to stay on top of day-to-day decisions as you age; or if you just want to cover all possible eventualities to protect your family’s inheritance; it’s worth talking with your lawyer about how or when to incorporate a power of attorney as part of your estate plan.
What To Do Next:
Estate planning can be deceptively complex. Not only do state and federal laws change, but every family situation is different. Planning choices have profound tax and family relationship implications; and, not having a plan in place is worst of all.
Adam Wood offers clients a no hassle estate planning strategy meeting. During and after the meeting, Adam guides his client through a plan which will achieve his client’s goals and put his client’s fears to rest. Ultimately, he provides peace of mind for his client and client’s loved ones. Just call his office at 631-266-2200 to schedule a planning strategy meeting.