Powers of attorney are one of the most important and misunderstood components in estate planning. A power of attorney is a legal document where you (the 'principal') authorize someone else (the 'agent' or 'attorney-in-fact') to act on your behalf during your lifetime. The key piece is 'on your behalf.' The agent isn't acting as a lawyer or other advisor; they're acting as your representative.
It is important to establish both financial powers of attorney and health care powers of attorney. Think of it as giving someone a legal proxy to manage your affairs for financial and health care matters in the event you are unable to do so yourself.
What is a Financial Power of Attorney?
A financial power of attorney gives your agent authority to manage your finances and act on your behalf for all financial matters outlined in the document. This includes:
- Accessing and managing bank accounts and investments
- Paying bills and debts
- Buying and selling real estate and personal property
- Filing tax returns and handling IRS matters
- Managing retirement accounts
- Operating a business on your behalf
Even if you have one or more trusts that own some or all of your assets, there are still important financial matters that are personal to you and separate from the trust(s) that necessitate creating a financial power of attorney.
A financial power of attorney can be 'springing' or 'immediate.' A springing power of attorney takes effect only if you become incapacitated (as determined by the process outlined in the financial power of attorney). An immediate power of attorney is effective immediately at the time of signing. Most people prefer a springing power of attorney to allow them to retain exclusive control so long as they are able to manage their own financial matters. However, there are instances where having an immediate power of attorney makes more sense. For example, some elderly clients whose children assist them with day-to-day financial matters prefer to have an immediate power of attorney to allow their children to act on their behalf even while maintaining mental capacity.
Why Do You Need a Financial Power of Attorney?
Imagine suffering a stroke and losing the ability to communicate. Your family can't access your bank account. They can't pay your mortgage or medical bills. They can't sell property to cover expenses.
Without a financial power of attorney, in the event you become incapacitated–and lose the ability to communicate your wishes–your family must petition a court for guardianship in order to pay your bills, communicate with financial institutions on your behalf, file tax returns, etc. The guardianship process is a costly, public, and time-consuming process, often taking several months to carry out.
With a financial power of attorney, your agent steps in immediately and manages your affairs without court involvement. It is private, efficient, and outlines your intentions.
What is a Health Care Power of Attorney (Health Care Directive)?
Also called a 'health care proxy' or 'medical power of attorney,' this document authorizes your agent to make medical decisions on your behalf if you cannot. This includes:
- Consenting to medical treatment
- Accessing medical records
- Choosing doctors and hospitals
- Deciding on life support or end-of-life care (in accordance with your directives outlined in the document)
- Making organ donation decisions
Unlike a financial power of attorney (which can be immediate), a health care power of attorney typically takes effect only when you are incapable of making your own medical decisions (e.g. unconscious, in a coma, or mentally incapacitated).
Why Do You Need a Health Care Power of Attorney?
Suppose you are in the hospital and unable to communicate your desires with respect to decisions regarding your medical treatment. When doctors look to your family for treatment decisions, family members disagree. One wants aggressive intervention; another wants comfort care only.
In this situation, a healthcare power of attorney settles the dispute. Your designated agent has legal authority to make decisions based on your values and desires that you have set forth. Because you have already delegated the responsibility and outlined your decisions, your family does not have to guess or fight, which can reduce the burdens on your family during an already trying and emotional time.
Difference Between a Health Care Power of Attorney and a Living Will.
These terms are sometimes confused. A power of attorney gives someone authority to make decisions for you. A living will (or advanced health care directive) documents your wishes about end-of-life care.
Both are important. A living will instructs your agent on your preferences in different situations (comfort care vs. aggressive treatment). A health care power of attorney empowers your agent to implement those wishes if you cannot communicate. Both work together and are often executed together.
Conclusion
A financial power of attorney and a health care power of attorney are essential components of a complete estate plan. They protect you if you become incapacitated and keep your affairs running smoothly without court involvement. Do not assume your family will automatically be able to manage your life if you cannot. Give them the legal authority and the instructions they need to carry out your specific desires. Schedule your appointment with our firm today to create both documents.
About the Author
Ronnie T. Goodwin leads the estate planning department with Leavitt Law Firm in Las Vegas, Nevada. To schedule a consultation or find out more information, visit www.leavittlawfirm.com.