How Powers of Attorney Can Protect Your Future
Life moves quickly, and estate planning often gets pushed to the side. However, over half of Americans have not done any basic estate planning, believing they can tackle it later. On the contrary, a power of attorney document is as essential as a fire extinguisher in your kitchen – you need it when you need it.
What is a Power of Attorney?
A power of attorney (or POA) is a legal document that grants someone permission to act on your behalf in financial matters or make healthcare decisions for you if you are unable to do so. The designated person is called an agent. Without a power of attorney, a close contact, including your spouse or other family members, will need to obtain legal approval from a court to become your guardian or conservator, which can be expensive, embarrassing, and time-consuming.
Setting Up a Power of Attorney
First, choose a trustworthy individual (or individuals, if naming a secondary agent) who has your best interests at heart. Discuss your intentions with them. Then, meet with a qualified estate planning attorney who can assist you with preparing and executing your power of attorney documents. Most states require these documents to be notarized, and some may even require the documents to be witnessed, depending on what kind of POA you create. After the documents are signed, make copies to provide to financial institutions and healthcare providers, and store the originals securely in a fireproof safe or a safe deposit box at a local bank. You may also want to provide them to the agents that you named or at least let them know where they can be found in case of an emergency.
Note that you can change your power of attorney documents any time, so long as you have capacity. Many estate planning attorneys recommend reviewing them every few years or when you experience a major life event.
Types of Powers of Attorney
Durable POA for Finances: Grants ongoing authority to your agent to make financial decisions on your behalf, even if you become incapacitated. This agent does not have authority over your healthcare decisions. Common choices for financial agents include spouse, adult children, trusted friends, or business associates. You can grant your agent immediate authority to act on your behalf or make your POA “springing,” which means the agent may only act upon a specific condition, such as certification of your incapacitation (determined by medical professionals or a judge). One disadvantage of a springing POA is the potential for delay as your family waits for a doctor or judge’s finding of incapacity.
Health Care POA (Medical POA/Health Care Proxy): Grants your agent authority to make healthcare decisions for you. It is a limited POA that focuses on medical treatments, doctors, and end-of-life care. The agent does not have authority over your general finances. You should also consider creating an advance directive (or Living Will Declaration) to supplement your Health Care POA. An advance directive allows you to specify whether you want life-sustaining treatment, such as artificial nutrition and hydration, administered or withdrawn if you are nearing the end of life.
Which POA is Right for Me?
Both! Everyone should have both a financial POA and a health care POA. You and your attorney can determine how much authority you want to grant your agent. However, keep in mind that all POAs terminate at death. We recommend you also discuss and implement other key estate planning documents, such as a will or trust, to provide for the orderly administration of your estate after you pass away.
If you have young adult children, it’s also a good idea to establish a POA for property and health care documents for them after they reach the age of majority in their state of residence. Without a POA, you may be unable to assist them with financial transactions or make healthcare decisions in an emergency situation.
Properly executed power of attorney documents are critical steps toward ensuring that financial and medical decisions are made according to your wishes. Careful planning today can help bring you peace of mind for tomorrow.
Jonathon D. Merickel
Portfolio Advisor
CFP®, MBA