Powers of Attorney
In the last article, I provided basic information about the Last Will and Testament and its place in the estate planning process. In this next installment of our series on estate planning basics, I will discuss Powers of Attorney (POA).
As part of a comprehensive estate plan, individuals must plan for situations in which they may find themselves unable to make their own decisions, whether by physical or mental disability or even when simply not physically available. A POA is a document in which a person appoints someone (an “Agent”) who can act on his/her behalf in a variety of situations when the person is unable to act on their own.
Powers of Attorney are important because the statistics show that 68% of Americans over 65 years of age will at some point be considered disabled.1 And disability is just not for retired persons: almost one-third (1/3) of long-term disability claims were made by people under the age of 65.2 When you consider other short-term scenarios when a person may not be able to act on his/her own (i.e. surgeries, rehabilitation, hospitalizations, etc.), it becomes even more apparent that the POA is an essential part of someone’s estate plan.
A POA may be crafted so that it is only effective when a person is unable to make decisions for himself/herself (called a “springing POA”), or it can be written so that it is effective even when a person is competent. An individual may also grant very broad powers to his/her agent or may grant only specific, limited powers. Including these features or not is purely at the discretion of the one drafting the POA.
There are two main types of POAs commonly used in estate planning: (1) The POA for Financial Matters, and (2) The POA for Healthcare Decisions.
For Financial Matters, a person names someone who can handle financial matters on their behalf in the event he/she is unable to do so. Many times, these types of POAs are effective immediately on signing, whether the individual is competent or not. This is helpful in instances when it may simply be inconvenient for someone to handle matters on his/her own (for example, if someone is out of town). However, a POA may also be written so that a person must be incompetent before the agent can act. Making incompetency a requirement can sometimes add complication to the process, as it normally must be objectively proven. However, if it is important to the client, it can certainly be included.
For the Power of Attorney for Healthcare, a person names someone who can make healthcare decisions on his/her behalf. POAs for Healthcare are only effective when the person is incompetent. As long as someone is competent, he/she can always make his/her own decisions. However, in instances when someone is not competent (i.e. due to medication, anesthesia, or a mental issue), the appointed person can consult with the doctors and make the best decision for the person. Appointing someone in a POA to make healthcare decisions on behalf of someone else does not change that person’s ability to make their own decisions when they are competent.
Powers of Attorney are distinguished by whether or not they are “durable,” which simply refers to whether the POA will remain in effect when someone is incompetent or not. Without a statement in the document to that effect, the POA is invalid when the person who granted it becomes incompetent. While incompetency is normally the situation for which a person plans, it is imperative that language concerning durability be included in the POA.
What happens if someone does not have a POA? If a person becomes incompetent, with no one to make decisions on his or her behalf, their family or friends will find themselves in a costly (and grueling) process of having the court appoint a Guardian or Conservator for them. POAs provide economical and efficient solutions for these situations.
In the first article, I discussed the Last Will and Testament, a document that controls what happens after we die. Having Powers of Attorney for both Financial Matters and Healthcare gives individuals coverage for difficult situations they could encounter during life. By having all of these documents in place, they can provide peace of mind for themselves and their families.
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1. AARP. Beyond 50.2003: A Report to the Nation on Independent Living and Disability, 2003.
2. Rogers, S., & H. Komisar. Who needs long-term care? Fact Sheet, Long-Term Care Financing Project. Washington, DC: Georgetown University Press, 2003