Power of Attorney

In the event that you are unable to care for your own financial affairs due to age or incapacity, a power of attorney assigns your financial decision making to your “agent” or “attorney in fact.”  Not be mistaken with an actual attorney, your “attorney in fact” is the trusted person you assign to make your decisions for you.  This person is a “fiduciary,” meaning that the decisions they make on your behalf must be in your best interests or in accordance with your wishes.

Under a general power of attorney your agent is allowed to make your financial decisions including: banking transactions, buying and selling property, settling claims, entering into contracts, filing tax returns, and handling matters related to government benefits.

Under a limited power of attorney, you assign your agent limited authority in a particular area, such as selling a piece of real estate.  There is also a healthcare power of attorney, where your agent makes healthcare decisions on your behalf, which is discussed in greater detail here.

If you do not assign a power of attorney the court may appoint a guardian to oversee your financial affairs if you become incapacitated.  It can be costly to have the court appoint a guardian and to pay for their oversight.  Comparatively, if you appoint a friend or family member as your “agent” then they may be willing to do it for free.

Furthermore if the court appoints a guardian, you will not have any input on who is appointed.  If you become incapacitated and do not have a power of attorney, there may not be anyone who will seek guardianship from the court, exposing you to potential loss from elder abuse and financial mismanagement.

General, limited, and healthcare powers of attorney can be created as “springing” or “durable” which give your agent authority to act at different times.

A “springing power of attorney” takes effect when you lose the ability to make your own decisions due to incapacity.  In order for a “springing power of attorney” to become active, there must be a formal determination of incapacity, usually by at least one doctor. If there is a conflict amongst the doctors, it may make it more expensive to determine if you are incapacity and delay your agent’s ability to act on your behalf.  Despite the potential for conflict, many people prefer a “springing power of attorney” because they do not want to give up control over their affairs while they are still capable of making their own decisions.

Unlike a “springing power of attorney,” a “durable power of attorney” is effective immediately.  A “durable power of attorney” takes effect even when you are capable of making decisions on your own.  This is beneficial because it does not require a doctor to deem you incapacitated for it to take effect.  However, the main limitation of the “durable power of attorney” is that it is limited to whatever you are capable of doing at the time. For example if you are not legally capable of entering into a contract due to incapacity, your “agent” cannot enter into a contract on your behalf.  Since this agent can act while you are still able to make your own decisions, it is important to choose someone who is trustworthy.

With the variations that exist when assigning a power of attorney, it is important to consult competent counsel to determine which option is best for you.

Why have a Living Will, Advance Medical Directive, Healthcare Proxy, or Medical Power of Attorney

A living will, advance medical directive, healthcare proxy, and medical power of attorney are all different legal methods that allow you to make future medical decisions today. These methods come into effect if you are unable make your own medical decisions or wish to preplan your medical wishes while you are healthy.  Even though these planning methods all give you control over your future medical care, there are differences amongst them in how your wishes are carried out.

A living will, which is synonymous with an advance medical directive, allows you to make medical decisions regarding life saving treatment that will go into effect if you become terminally ill or are unable to communicate your medical decisions.  It is important to be as specific as possible with your wishes, because doctors, hospitals, and other medical institutions will need to read your instructions and act based on their interpretation of your wishes.

While medical professionals try their best to follow your wishes as laid out in your living will, having a healthcare proxy or assigning a medical power of attorney will give you someone to advocate your wishes.  Having an advocate will increase the likelihood that your wishes are carried out.  Having a healthcare proxy or assigning a medical power of attorney will also give your advocate the power to make medical decisions for you if you become incapacitated.

It is important to be careful when choosing your advocate because of the important medical decisions they are entrusted to make.  This person needs to be someone who understands your medical condition and wishes, who can handle the stress of making difficult medical decisions, and is able to maintain your best interests in their decision process.

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The Benefits of a Will

A will is a document that provides instructions on how you want your assets distributed. If you do not have a will or other testamentary instrument, then the state will determine how your assets are distributed based on its intestacy laws.  These intestacy laws vary from state to state and do not allow you to choose which assets go to your loved ones. Estates that go through intestacy may also be subject to greater tax liability.

In addition to distributing assets, it is also very important for families with young children to have a will.  A will is the best way to appoint your child’s legal guardian because a will gives you full control over who cares for your minor children after you are gone and it helps make a difficult time more certain and for your child and loved ones. Without a will, the guardianship process may become more complicated, contentious, and uncertain for your child and loved ones who want to take care of your child.

A will is also important when it is used in conjunction with a “trust.”  In short, a trust is a testamentary instrument that holds retitled property to be distributed after your death and is effective during your lifetime.  A will used in conjunction with a trust is called a pour-over will and can be used to put any item into the trust at your death that is untitled or has not been retitled in the name of the trust.  A pour over will also take care of other non-property issues that are traditionally in a will, such as guardianship for minor children.

To determine if a will is the best instrument to devise your estate, contact an attorney to assess the benefits of each option.

Evaluate Your Assets and Goals to Determine What Estate Plan is Best for You

Estate planning is often a task that people do not look forward to because it forces them to consider their own mortality and incapacity.  But you should embrace the estate planning process because it allows you to ensure that your assets are given to your loved ones and that your wishes are carried out to the fullest extent of the law.  Having an estate plan may also reduce administrative costs as well as tax liability that falls on your loved ones.

Taking an inventory of assets is important to determine what assets are going to be inherited as well as determining who you want to receive them.  Look at all of your financial assets including retirement accounts, real estate, investments, business interests as well as any outstanding loans and debt.   In addition to financial assets, you should also consider your personal assets such as cars, family heirlooms, jewelry, furniture, pets, and other personal items.

When considering your assets, it is important to consider your liabilities as well. Determine if you wish for your loved ones to receive their inheritance based on the item’s value before or after the liabilities have been paid.

It is also a good idea to inform potential heirs of your estate plan because it makes it less likely that there will be conflict when you are gone.

With the laws surrounding estate planning constantly changing and the different assets and goals that arise with different estates, it is important to consult with an estate planning attorney for competent and current advice.

Great WSJ Article On The Importance Of Estate Planning

With today’s economic climate in constant turmoil, it is important for people to take control of their finances as much as possible.  You can take control by setting up an estate plan, which among other things helps you plan how your assets are distributed, guardianship of your minor children, future medical decisions, as well as how to decrease tax liability. This article from the Wall Street Journal is a very informative introduction to the benefits of an estate plan and some of the pitfalls that people may face if they do not have one.

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