When it comes to estate planning, having a power of attorney in place is a very helpful, strongly recommended asset.
What is a power of attorney (POA)?
A power of attorney is someone you appoint, your “agent” or “attorney-in-fact” to act on your behalf for health, financial and “other” purposes when you are unable to do so yourself, usually due to illness or injury. POA’s can last until you die but others can be in shorter duration. There are four main types of powers of attorney, but we’ll cover that in just a second.
Why does a power of attorney matter for estate planning?You’re leaving no stone unturned when preparing your estate for your eventual passing. We don’t really know when that time will come for each of us, or the circumstances of which they’ll come.
The last thing you want is to have someone else making the decisions for your life, your health and your finances that you don’t want making them.
If you’re planning who gets what in your will, then you absolutely should plan on who needs to make those calls on your behalf if you’re unable to do so, so all of your wishes are followed through on.
Many people falsely presume that a power of attorney needs to be, well, an attorney. The person you select does not need to be a lawyer, though many people choose one simply because they’re far enough away from their own personal life but know they must act in accordance with their wishes. It removes any complications that might naturally find themselves in difficult familial situations.
That said, again, you can choose any capable adult you want to be your POA. Someone trustworthy and capable is key as they will act in the same legal capacity as you would. If you name a family member to be your POA, that removes any professional fees you’d have to pay towards a lawyer.
Oftentimes, aging parents choose their adult children who are trustworthy and capable, whom they know would act out their parents' wishes even if they contradict their own.
If you’re not sure who to appoint as a POA, the good news is that you can have multiple options, especially if you want to divide the tasks amongst your children.
That said, choosing multiple POA’s can also complicate matters if they share delegations in a particular area (eg: financial). If they become embattled in the decision over where your money should go, your accounts could be frozen.
If this is a concern, you can require your POA’s to report to a safe third party, like a financial advisor, lawyer or accountant, on what is happening with their responsibilities, how they’re fulfilling them, etc.
How do I appoint a power of attorney?Ideally, you should contact a lawyer who specializes in family law to help you draft up this very important document. That said, if the fees are too much, you can also download a power of attorney template online. That said, you will still have to have your own “DIY” form notarized. Whomever you choose, they need to be a capable adult who is not otherwise incapacitated.
If you decide to change your POA, you can. Situations change all the time and you have the ability to do so. It’s a good practice to review your entire estate plan regularly with your financial advisor, and part of this is reviewing any POA’s you have in place and amend them as necessary.
What are the types of powers of attorney?There are four main types to review.
General power of attorney - This is the most comprehensive power of attorney and would give the person you choose all of the powers and rights that you have. This would grant them the permission to do things like conduct financial transactions in your stead, pay your bills, sign important documents, etc. A general power of attorney can also be used even if you’re fully lucid and capable yourself, but need assistance with those matters. Unless you rescind it, the power of a general POA ends upon death.
Durable power of attorney - As with a general POA, a durable POA lasts until death unless you rescind it, and it can be both limited and general in their scope, but remains in effect even after you become incapable of handling your matters. If a durable POA is not in place if you become incapacitated, then no one can handle them until the courts appoint someone to do so.
Limited power of attorney - A limited POA gives someone else the power to act on your behalf for a limited purpose and usually for a one-time situation. A perfect example of this would be to grant someone the ability to sign a document for you if you were out of town for a long time.
Springing power of attorney - A springing POA only comes into effect until you become incapacitated, and not before. If you choose this kind of POA, it’s important to review how the springing POA will be “triggered” and that the instructions and capacity of it is very clearly explained in the POA document.
Regardless of the type of or combination of POA’s you choose, having a thorough estate plan is a good idea. Talk with us today to learn how we incorporate estate planning into our 5 phase financial plan.