Let’s Finish My Estate Plan! – Powers of Attorney

In the last newsletter we talked about Wills and, more specifically, whether or not you need an attorney to prepare your Will. If you missed that article, check it out here. I mentioned powers of attorney (POAs) in the Wills article without providing details. There was a lot of interest in the Wills article, especially from young parents, so I want to provide some follow up information on POAs because every basic estate plan should include them.

1. What is a Power of Attorney?

A POA is a legal document authorizing another person to make decisions for you when you are incapacitated (i.e. unable to make decisions for yourself).  Many people experience brief periods of incapacitation throughout their lives – being under anesthesia during surgery or getting knocked unconscious in a car accident are common examples – and others may experience longer periods due to conditions such as Alzheimer’s.

POAs fall into two separate categories: financial POAs and health care POAs. The difference between the two is straightforward: financial POAs allow your appointed person (called an agent) to make financial decisions for you when you are unable to make them for yourself and health care POAs allow your agent to make health care decisions for you. These documents are drafted separately and clients have the flexibility to appoint the same or different people as agents under each (and alternates as backup agents if they wish).

2. What does an agent under a Health Care Power of Attorney do?

A health care POA authorizes an agent to take a range of actions related to your health. These include authorizing or withholding medical care, procedures, or emergency medical treatment, and making agreements related to health insurance for that care. Additionally, you can empower your health care agent to receive medical records and information relating to your health from healthcare providers.  Even if you want a certain friend or family member to be kept up-to-date on your condition when you are incapacitated, a hospital might not release that information without a health care POA.  Having a health care POA and authorizing your agent to receive records means that the right person will get the information they need to make the necessary decisions.

3. When does a Health Care Power of Attorney take effect?

A health care POA can take effect as soon as you become unable to make decisions for yourself due to a medical condition. Alternatively, you may choose to require that a doctor verify your incapacity before the agent can start making decisions for you. The second alternative likely will create a delay between the time of incapacity and when your agent can take over for you. Time is critical in emergency situations and doctors are not always nearby, so if my client has someone they can really trust to make the right decisions for them (spouse, parent, sibling, etc.), I generally suggest making the health care POA effective immediately without verification.

4. Is a Living Will the same as a Health Care Power of Attorney?

A Living Will is not the same thing as a health care POA, but I encourage clients to create a Living Will at the same time they establish a health care POA. In fact, I include both in the same document. A Living Will provides instructions for your health care agent under the POA and health care providers regarding life-prolonging decisions when you become unable to communicate your wishes and there is no realistic hope of recovery. Having a Living Will allows you to make your own decision, in advance, about what care you receive in this situation.  This prevents health care agents, who may be a spouse or close family members, from having to make the difficult decisions on their own about what they think you would want in this situation.

5. OK, I’m on board with the Health Care Power of Attorney and Living Will, but do I really need a Financial Power of Attorney?

Even if you don’t have a business or own a lot of property or investment assets, you still have to pay bills, taxes, and other expenses on a regular basis. If you have children, this is especially true – and depending on your goals, you may also be regularly saving and investing money for their benefit as well. A financial POA makes sure that all of these financial obligations are met when you are not able to carry them out on your own. Bottom line: if you don’t have a financial agent in place in a time of incapacity, loved ones may not be able to access your funds to go on paying routine bills in order to care for you and themselves.

6. Who should serve as my Power of Attorney?

This question highlights why I draft financial and health care POAs separately. Both positions call for someone with good judgment who understands what you would want to have happen when you are unable to make your own decisions. You may even decide to name the same person as both your health care and financial agent – and that’s fine. However, each position potentially requires different skill sets depending on your personal circumstances.

The considerations for choosing a health care agent are essentially the same for everyone. Given that your health care agent makes decisions that will directly affect your health, you will want to choose someone whose judgment you trust. They don’t have to be a doctor or a nurse; they just have to be someone you trust to make the right decision for you in a high pressure situation.

The considerations for choosing a financial agent differ somewhat depending on the sophistication level of your financial picture. Individuals who regularly make decisions that require some degree of business savvy or financial judgment (e.g. business owners or skilled investors) should consider naming a financial agent who has the same or similar level of proficiency in those areas. On the other hand, if your finances are more routine, your decision can hinge more on trust. At the end of the day you want to choose a financial agent that will make sure your assets and liabilities are properly handled for you and your family in your time of incapacity.

7. Should an attorney draft my POAs and Living Will?

Like wills, you can write out a POA on your own. However, vesting your financial and health care agents with too little power can defeat the purpose of having POAs in the first place, and giving them too much power may result in them making decisions that go beyond what you would have wanted.  For that reason, working with an attorney is the most effective way of making sure your POAs accomplish your goals in the event they are triggered.  Additionally, an attorney will make sure that the POAs comply with state laws governing the form, witness, and notary requirements that make the POAs enforceable.

8. The Big Takeaway

If anyone relies on you financially – spouses, kids, parents, friends, animals – you should have a financial POA. If anyone cares about you and you want to make difficult health care choices easier for them and ensure that you are cared for properly, you need a Living Will & health care POA. Finally, when you put your POAs in place remember to check them periodically (about every 5 years) to ensure that they remain up to date.

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