So often, the focus of estate planning is only on how assets will transfer upon one’s death. However, one aspect of estate planning that should not be overlooked is planning for incapacity. Even though it’s not an easy thought to process, many of us will go through a period of incapacity prior to death. If you become incapacitated, who will manage your financial affairs? Who will make your health care decisions?
One key tool for planning for incapacity is called a Power of Attorney. A Power of Attorney is a legal document in which you appoint an agent to act on your behalf. A Power of Attorney can be general, meaning that you give your agent the power to do any act on your behalf that you could have done yourself. A Power of Attorney could also be limited, meaning that you only give your agent specific powers that you list in the document.
A financial Power of Attorney gives your agent the ability to act over your financial affairs. Some examples of powers that may be granted in a financial power of attorney include the power to sell, lease, or mortgage real property; open safe deposit boxes; create or modify bank accounts; write checks from bank accounts; manage life insurance policies and retirement accounts; and apply for government benefits. A financial Power of Attorney can be immediate, meaning that the agent has the authority to act over the financial matters of the person who signed the Power of Attorney immediately. An immediate financial Power of Attorney may be beneficial for a person who has capacity, but desires assistance with financial matters for some other reason, such as diminishing eyesight or difficulty writing. Immediate financial Powers of Attorney are also common among married couples. In the alternative, a financial Power of Attorney may be springing, meaning that it only becomes effective upon the incapacity of the person who signed it.
A health care Power of Attorney gives your agent the ability to make health care decisions in the event that you are unable to make those decisions for yourself. Some examples of powers that may be granted in a health care Power of Attorney include the power to consent to or refuse any types of medical treatment, surgical procedures, medication, or diagnostic procedures; access your medical records; and admit you to the hospital, nursing home, or assisted living. A healthcare Power of Attorney may also contain direction for your agent regarding life sustaining treatment in the event that you are in a terminal condition, your death is imminent, and you are no longer able to communicate your own decisions regarding your health care.
If you do not have a Power of Attorney, your family members or other loved ones may have to petition a court to nominate a conservator to manage your financial affairs and a guardian to manage your personal affairs. Guardian and conservatorship proceedings can be contentious if family members disagree over who is best suited to serve as guardian or conservator. Contentious proceedings can generate costly legal fees. Further, these are public proceedings dealing with matters that most people would prefer to keep private. Having a Power of Attorney ensures that someone you trust will have the authority to manage your financial affairs and make your health care decisions if you become incapacitated, without the need for court proceedings. Powers of Attorney are often created as part of your comprehensive estate plan, but they can also be prepared separately for those who desire to address only the particular issue of incapacity during life.
*As seen in Dakota Farmer