Estate Planning: Power of Attorney
What is Power of Attorney?
The Power of Attorney is called the durable power of attorney or a power of attorney; both are interchangeable. Assigning a power of attorney prepares people for a devastating event that causes incapacitation - setting up legal oversight of their medical and financial affairs.
It is an important component of estate planning and recognized in all states. It's an important decision to make when talking to a parent or loved the one about their future care. The power of attorney remains valid especially in times the person is unable to make decisions.
An example: Let's say a person is in an accident or develops Alzheimer's disease; now they are unable to communicate his/her medical wishes and treatments and unable to manage financial matters. The power of attorney makes life easier for a person with an incapacitating disability.
A durable power of attorney allows for a person to assign an agent to make health care decisions, manage financial affairs, or conduct various other business arrangements - on their behalf.
You have two options when writing a power of attorney: written to cover broad areas, or limited to include specific ones. For example, a general power of attorney allows the assigned agent to do every act that requires you to perform legally. The limited power of attorney covers specific events, like selling property, making investments, or making health care decisions.
Why do you need a Power of Attorney?
No one knows what may happen in the future. By executing a power of attorney now, you prepare for the unexpected and reduce potential devastating effects. Do not assume that a spouse can step in and take care of your medical and financial affairs. Even if married, your spouse does not have the legal authority to speak for you. Have you ever talked with the bank about a credit card that's in your wife's name? It's impossible - the credit card company will not disclose information to you without first getting approval from her. The same goes for medical decisions too.
So, make it easier for your family or friends to act on your behalf and be your voice.
The Differences of Financial and Medical Powers of Attorney
Financial Power of Attorney
This legal form gives the assigned agent the authority to handle financial transactions on your behalf. While some are simple for single transactions, like closing a real estate deal, there are those more complex and comprehensive. The complex document allows the assigned agent to manage all of your financial affairs. It's called a durable power of attorney for finances.
An assigned agent handles:
- Mundane tasks such as sorting through your mail
- Depositing your Social Security checks
- Watches over your retirement accounts and investments
- Files your tax returns
Your agent can hire professionals (paying them out of your assets) to help out.
Medical Power of Attorney
This legal form is a health care directive that oversees your wishes for health care if you are ever too ill or injured to speak for yourself. It's called a durable power of attorney for health care or health directive. Again, you assign an agent to direct or manage your medical care and make the needed medical decisions for you if you are unable.
The person you assign to manage your health care affairs works with doctors and other health care providers to make sure you get the kind of medical care you wish to receive. When arranging your care, your agent is legally bound to follow your treatment preferences.
To make your wishes clear, consider executing a second type of health care directive called a living will or medical declaration. It contains all the written health care instructions for your assigned agent and health care medical providers to follow.
Why You Need Separate Documents for Medical Care and Finances
Theoretically, you could execute one legal document to cover both matters: medical care and financial affairs. It's a better idea to create separate forms or documents for each.
For example, health care documents contain personal details that your financial broker doesn't need to know. Likewise, your medical professionals have no need to know the details of your finances.
Even though you should create the separate power of attorney documents - name the same agent under both documents. If you must assign two different people, make sure they get along, are on the same page, and work well together.
Choosing a Power of Attorney Agent
Another name for an assigned agent is attorney-in-fact. Your designated agent is a friend or family member. They do not need a license or have expertise. It's crucial that the person you select is trustworthy and promises to act in your best interests.
Questions to ask when selecting an agent:
- Do you trust this person with your financial and other legal affairs?
- Is this person financially responsible?
- How do they manage their own financial and legal affairs?
- Will this person charge you a fee? Family members usually perform the service at no cost. An attorney at law or accountant charges a fee for services.
- Will the person agree to serve as your agent? Discuss your request first before making it official.
Revocation of a Power of Attorney
Over time, if you become unsure of your assigned agent's trustworthiness or capabilities, terminate them immediately. The form to terminate the agent's authority is the "revocation" of the power of attorney document. The principal of the power of attorney can terminate it at any time if they are of a sound mental condition. Destroying the material is one method of termination. The principal may also send a registered, notarized document by mail to the agent, informing them of the termination.
The steps to terminate a power of attorney are, a) file a revocation, b) if the attorney-in-fact is not able to fulfill their duty, c) or the death of the principal. The death of the principal terminates the document whether the document if officially registered or not.
In some states, a power of attorney is automatically terminated by a divorce if the attorney-in-fact was a spouse. Check all laws concerning such a document in your state.
Do I Need to Hire an Attorney to Execute a Power of Attorney?
You do not need to hire a professional attorney to execute a legal power of attorney for you. However, it is best to consult with an attorney regarding your estate planning affairs. An attorney can help create the power of attorney paperwork as well as guide you through the differences and obligations of assigning one.
If you do not use an attorney, however, you do need to follow these steps:
- The principal sign and date the power of attorney documents.
- The appointed agent sign and date the document.
- A notary or two-blood related witnesses sign and date the documents.
Anyone signing the paperwork should at least be 18 years old and of sound mind. All parties must understand what they are signing. And in control of their free will.
Protect Your Power of Attorney Document
Protect your document that specifies the power of attorney. Place it in a safe place, such as a lock box of a safe deposit box. If you suspect that someone will try to challenge the document, have your doctor sign a statement that you were in a sound state of mind when you signed the document. Have several witnesses sign the document. A lawyer can review the power of attorney as well.
After seven years of helping her aging parents, Carol Marak has become a dedicated senior care writer. Since 2007, she has been doing the research to find answers to common concerns: housing, aging and health, staying safe and independent, and planning long-term.
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