Estate planning is one of the most important financial and legal processes people undertake to secure their future and protect their loved ones. While most people are familiar with the concepts of wills and trusts, an often overlooked document is the power of attorney. Unlike a will, which dictates the distribution of assets after your passing, a power of attorney is a legal document that grants someone the authority to make decisions on your behalf while you are still alive but unable to act. These decisions can cover a wide range of areas, including financial management and healthcare choices.
A power of attorney (often referred to as a "POA") is a legal document that authorizes someone else, known as your agent or attorney-in-fact, to act on your behalf in specific matters. The scope of authority you grant can vary significantly, depending on what kind of POA you establish and the powers you wish to confer. For example, some POAs are very limited in scope, while others grant broad, sweeping powers.
One key feature of a power of attorney is that it can take effect either immediately upon signing or only when certain conditions, such as incapacitation, are met. It’s essential to be clear about how and when the power of attorney should come into effect, as this can help prevent confusion or misuse down the line.
2 Main Types of Powers of Attorney
Powers of attorney often fall into two main categories, and these are the same categories that most estate planning documents address: your finances and your health.
1. Financial Power of Attorney
A financial power of attorney is critical for managing your assets if you are incapacitated. This type of POA allows your agent to handle financial tasks on your behalf, such as paying bills, managing investments, buying or selling property, filing taxes, and handling other financial matters. If you don't have a financial POA in place, your family may be forced to seek legal guardianship to take control of your finances, a process that is both time-consuming and expensive.
The financial POA is a vital component of estate planning because it ensures that your financial life doesn't come to a standstill if you're unable to manage your affairs. Your agent can keep everything running smoothly, ensuring that bills are paid on time and assets are managed properly.
2. Healthcare Power of Attorney
Equally important is the healthcare power of attorney, which grants an agent the ability to make medical decisions on your behalf if you're unable to do so. This might include making choices about treatments, surgeries, medication, and end-of-life care. A healthcare POA ensures that your wishes regarding medical care are respected, even if you can't communicate them yourself.
These documents can vary from state to state. Some are called healthcare powers of attorney, others are healthcare directives, you can also encounter living wills and do-not-resuscitate directives as well.
Without a healthcare POA, your family may have to go to court to establish guardianship or conservatorship to make medical decisions for you. This legal battle can be lengthy and emotionally draining for your loved ones, especially during a time when quick decisions may need to be made about your health.
The Importance of Avoiding Conservatorship and Guardianship Proceedings
A power of attorney is an essential tool for avoiding the sometimes messy and stressful conservatorship and guardianship process. These proceedings typically occur when an individual becomes incapacitated and no one has the legal authority to make decisions on their behalf. In such cases, a family member or loved one must petition the court to be appointed as the person’s legal guardian or conservator.
This process can be both time-consuming and expensive, potentially leaving your financial and healthcare needs unmet during the interim. By having powers of attorney in place, you can avoid this process entirely. Your agent will already be authorized to step in and handle your affairs, providing peace of mind for both you and your loved ones.
How Do You Choose the Right Agent?
Selecting an agent, or attorney-in-fact, is perhaps the most critical decision when creating a power of attorney. The person you choose will have significant control over your financial and healthcare decisions, so it’s vital to choose someone trustworthy, reliable, and capable of handling the responsibilities. This person should also be willing to act in accordance with your wishes, even in difficult or stressful situations.
It’s also a good idea to have open and honest discussions with the person you choose to be your agent. Make sure they understand your preferences, values, and the types of decisions you would want them to make on your behalf. You should also name alternate agents in case your primary agent is unable or unwilling to act when the time comes.
Updating Your Powers of Attorney
Like any other legal document, a power of attorney should be reviewed and updated periodically to reflect changes in your life circumstances. Life is unpredictable, and relationships can evolve over time. The person you once trusted implicitly may no longer be the best choice as your agent, or you may develop new preferences regarding your healthcare and financial management.
It’s recommended that you review your power of attorney documents every few years or whenever there is a significant change in your life, such as a marriage, divorce, birth of a child, or change in financial status. Updating your POA ensures that it remains relevant and that your agent is still someone you trust to carry out your wishes.
Updating your powers of attorney is often a quicker and less-involved process than updating your will or trust. However, many people (wrongly) assume that they have to go through the whole estate planning process again, when all they need is an update to one or two documents. Before you write it off as too expensive or involved, make sure you speak to your attorney. The update can often be done in under an hour.
Working with Estate Planning Professionals
Creating a power of attorney is not something you should take lightly. It requires careful thought and consideration and working with an experienced estate planning attorney can help ensure that your POA is drafted correctly and aligned with your overall estate plan. An attorney can guide you through the legal requirements, help you decide which powers to grant, and ensure that your document complies with state laws.
Additionally, your attorney can provide insights into how to best structure your power of attorney to avoid potential conflicts or disputes. They can also advise you on other essential estate planning documents, such as living wills, healthcare directives, and trusts, to ensure that your entire estate plan is comprehensive and cohesive.
While wills and trusts are often at the forefront of estate planning, powers of attorney are equally crucial. These legal documents ensure that your financial and healthcare matters are handled according to your wishes if you become incapacitated. By establishing a financial and healthcare power of attorney, you can avoid the complexities of guardianship proceedings and ensure that your affairs are in the hands of someone you trust.
Creating a comprehensive estate plan that includes powers of attorney will give you and your loved ones peace of mind, knowing that your wishes will be respected no matter what the future holds.
Do You Need an Estate Plan?
If you need an estate plan or just some updates to the plan you've already created, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.
