Choosing the wrong power of attorney could get you into trouble.
Incapacity planning is important for any adult.
If something happens to you and you cannot manage your financial and health care decisions on your own, you will need someone to do so on your behalf.
This involves creating and signing a power of attorney.
According to a recent Next Avenue article titled “Does your estate plan use the right type of Power of Attorney for you?,” failing to sign the proper power of attorney documents will lead to problems in the future.
Not all powers of attorney are alike.
You will likely want a “durable” power of attorney.
What is a durable power of attorney?
Durable means the power of attorney will continue to retain its authority and validity after you have lost mental capacity.
The authority granted to the agent will end only when you die or regain capacity.
The powers granted by a durable power of attorney may be broad and comprehensive, especially if it is a “general” durable power of attorney.
The agent will be able to buy and sell property on your behalf, manage your debt, handle your Social Security benefits, file tax returns, and oversee non-trust assets.
There are two types of powers of attorney in terms of when they take legal effect.
You can choose between an “immediate” or “springing” power of attorney.
What is the distinction?
An immediate durable power of attorney becomes effective as soon as it is signed.
This means your agent can act on your behalf even while you are capable of handling your own finances.
Often spouses appoint one another as the primary agent when they use an immediate power of attorney.
The springing power of attorney places limitations on when the agent receives authority to act.
Oftentimes, before the agent would have power to act on your behalf, you will need to be declared incapacitated by two physicians.
If you are concerned your agent may take advantage of the authority granted through powers of attorney, you may prefer a springing power of attorney.
Incapacity can happen suddenly whether through illness or an accident.
How should you choose an agent?
The person needs to be trustworthy and competent.
Ask yourself whether you would trust the person right now with your checkbook and with the responsibility of paying your bills.
What happens when you recover your capacity?
Your agent will relinquish authority and return everything to your care.
Often the person named as the agent in a durable power of attorney is also named as the estate executor under your last will and testament.
In addition, if your last will creates “testamentary trusts” to eventually administer the inheritance or you have created a funded “revocable living trust” to avoid probate, the same person also may be appointed to serve as trustee.
This means the person will play an important role while you are alive, should you become incapacitated, and when you die.
To best accomplish their responsibilities, the agents will need to have access to your important documents and records, along with your professional advisors.
Before you create a durable power of attorney, you will want to ask whether the individual is willing to serve in the role.
If you are not sure what powers of attorney are best for your situation, work with an experience estate planning attorney.
Reference: Market Watch (Oct. 5, 2020) “Does your estate plan use the right type of Power of Attorney for you?”