A power of attorney is key to incapacity planning.
People have varying views of estate planning.
Some individuals believe it is so simple they can do it all themselves.
Others believe having an estate plan is unimportant.
Still, others understand estate planning can be nuanced and can benefit from working with an experienced estate planning attorney.
According to a recent The Gazette article titled “Money & the Law: Powers of attorney more complex than they might seem,” the language of power of attorney documents can lead to vastly different results.
Powers of attorney are essential building blocks to any estate plan addressing incapacity planning.
When a power of attorney is signed and notarized, it gives authority for the named individual to serve as an “agent” on behalf of the “principal” who is granting the authority.
How much authority is granted?
It depends on whether the scope is broad or limited.
Also, when does the authority begin?
Is it now (an “immediate” authority) or only when actual incapacity has been confirmed (a “springing” authority)?
Although you could get a generic form from the internet, it may not have the authorizations or limitations you desire.
With a personalized power of attorney document, you can specify limitations, such as allowing for paying bills but not for selling a home.
Within estate planning, general power of attorney documents are common.
Why would these be helpful?
These powers of attorney allow for someone to manage your financial affairs if you travel often and are unable to be physically present for a given transaction or if you face cognitive decline or impairment and require greater assistance as you age.
A durable power of attorney includes language granting a continuation of authority for the agent after the principal has become legally incapacitated.
Power of attorney authority does not continue after a person has died.
What happens if someone becomes incapacitated without a durable financial power of attorney in place?
Loved ones must seek a conservatorship from the courts for someone to be appointed to manage the financial affairs of the incapacitated individual.
These legal proceedings can be costly in time, money, and relationships.
Although powers of attorney are important to have in place, careful thought and attention must be given to making these decisions.
For starters, you will want to select a trustworthy agent.
In some instances, it may be wise to consider someone who will not inherit from you.
Some agents have been known to make self-serving decisions by skimping on taking care of the health needs of aging parents to preserve their own inheritance.
Shocking, I know, but it does happen.
Agents of financial powers of attorney may find the job to be too stressful.
Once a person becomes incapacitated, the agent must act as a fiduciary to make the best decisions for the individual who gave them the financial authority.
These agents are held to a standard of care defined by the state.
Often these standards require competence, diligence, and prudence to be proven.
The scope of responsibility can also be extensive and include tax obligations, investment accounts, financial affairs, and even pet care.
The threshold of incapacity can be difficult to define.
As such, it can be challenging for the power of attorney agents to know when they can begin exercising greater discretion in decisions.
Because the power of attorney documents can be both nuanced and complex, working with an experienced estate planning attorney to create the forms is essential.
You should also review these forms every three to five years or as circumstances noticeably change.
Reference: The Gazette (Sep. 3, 2023) “Money & the Law: Powers of attorney more complex than they might seem”