In Parts I through III, we discussed estate planning and the importance of having an estate plan as well as two important estate planning tools, Wills and Trusts. This issue will focus on Powers of Attorney (POA) and the different types of POAs.
What is a Power of Attorney?
Estate planning is more than determining who will get your money and property after you die. Estate planning also means deciding who will manage your financial and legal affairs if you ever become incapacitated.
A Power of Attorney is a legal document in which you give another person legal authority to act for you if you are unable to do so yourself. The person who acts on your behalf is your “agent.” Your agent does not have to be an attorney, but should be someone you trust.
It is a misconception that that your agent will “take over” or that you will not be able to make your own decisions. You should think of a Power of Attorney as giving your agent a second set of keys. You will still have your own keys, and at any time, you can take your agent’s keys back by revoking the Power of Attorney.
Types of Power of Attorney
Some POAs are limited in scope. For example, a Limited Power of Attorney could authorize your agent to write checks from your bank account or access your safe deposit box. A General Power of Attorney, on the other hand, gives your agent the broad power to manage your property and pay your bills. It may even allow your agent to sell your property, to make gifts or to transfer your property to a Living Trust, if these powers are specified in the Power of Attorney.
POAs that continue to be effective during periods of disability are commonly referred to as “Durable Powers of Attorney.” In a Durable Power of Attorney, you may require that your doctor be the one to determine if the disability exists. At that point, your agent will step in to take over your finances.
Limited Power of Attorney
Through a limited Power of Attorney you authorize your agent to do specific things for you for a limited period of time or in certain circumstances. The limited Power of Attorney ends if you become incapacitated or die. It also may end at a time that you specify in the document.
General Power of Attorney
A general Power of Attorney gives your agent the authority to do whatever you can do. Think very carefully before signing this type of document. It should be used sparingly. This document ends when you become incapacitated or die.
Durable Power of Attorney
A durable Power of Attorney authorizes your agent to continue to act for you after you become incapacitated. This document ends at your death. It can take effect as soon as you sign it.
Durable Financial Power of Attorney
A durable Financial Power of Attorney allows your agent to carry out financial tasks for you when you cannot do so. This might include paying your bills, managing your property, and handling other money matters.
Springing Power of Attorney
A Springing Power of Attorney only goes into effect if you have been declared mentally incompetent either by a court or one or more physicians. A springing Power of Attorney can be written so it goes into effect when certain events occurs (e.g., if you become mentally incapacitated or cannot communicate). Be very careful to define clearly exactly how others will determine that the “springing event” has occurred.
The main disadvantage of a Springing Power of Attorney is that it will delay your agent’s ability to act on your behalf until after the proper documents have been signed that declare you mentally incompetent.
Healthcare Power of Attorney and Living Wills
A Healthcare Power of Attorney and Living Will let you dictate instructions for the type of health care you want to receive, including who should oversee your treatment, if you are unable to communicate these instructions yourself.
Healthcare Power of Attorney
A Healthcare Power of Attorney allows your agent to make health care decisions for you if you are unable to communicate your wishes regarding medical treatment.
A Living Will serves to inform medical personnel and your healthcare agent about your wishes regarding life-support or other medical treatment in certain circumstances, usually when death is imminent.
In the final installment of this series, I will discuss guardianship planning for minor children and the best way to go about selecting temporary and permanent guardians for your children.