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Power of Attorney: Don’t Leave Home Without It

Giving someone your power of attorney (POA) has been likened to giving a trusted person a spare set of keys to your house or car. If a problem arises — for example, you lose your keys — your interests are protected. Otherwise, you’re still in control. And just as you can take back your spare set of keys, you can also revoke a power of attorney.

Basically, a power of attorney gives someone the legal ability to act on your behalf in ways you specify. Obviously, you should only give this power to a person you have complete confidence in, such as your spouse, adult child, or trusted attorney. A POA can be as simple as giving your child the legal authority to pay your bills and endorse your checks if you are no longer able to do it. Or it can be more detailed, such as enabling your child to pay the bills and sell a parcel of real estate that you own.

Different Types of POAs

If you’re considering granting a power of attorney, here are the basic types available:

General power of attorney – This grants a wide range of powers to act on your behalf — basically, to do whatever you can do. In the event that you became incompetent or incapacitated or pass away, the POA would automatically be revoked. Because of the sweeping nature of this power, it should be used sparingly.

Health care power of attorney – This authorizes another person to make medical decisions on your behalf and remains in effect even if you have become mentally incapacitated. This type of authorization must be signed in front of witnesses and notarized in order to be valid. The agent (sometimes called the attorney-in-fact) that you appoint must be an adult, and cannot be a person who is paid to provide health care to you. As with other forms of POAs, you can specify the decisions you are authorizing your agent to make, or give them the same authority you have to make decisions for yourself.

Special power of attorney – As its name implies, a special POA gives your agent power to act only in specific situations. For example, let’s say you need to travel for a long period of time when certain matters need to be concluded at home, such as selling your car.

Springing power of attorney – A springing POA is an instrument that can be written so that it takes effect only if you become incapacitated. You need to be very clear when defining what circumstances will trigger a springing POA.

Durable power of attorney – A durable power of attorney can remain in force even if you become incompetent or incapacitated. This POA generally requires that a family member or close relative be appointed as your agent. It differs from a general POA in that it conveys limited powers to the agent and can be put in place for longer periods of time. It can be desirable for some individuals to separate the duties granted by durable POAs into two types — medical and financial responsibilities. For example:

A durable medical POA authorizes an agent to make health care decisions. You can give your agent the same authority to make decisions as you have yourself, or you can limit the authority. This POA becomes effective when a doctor states in writing that you’re not able to make your own medical decisions. You may want to include a health care directive, which states your wishes concerning life support, if it becomes necessary.
A durable financial POA names an agent to carry out your financial responsibilities described in the right-hand box. This type of POA can save your family enormous problems if you become incapacitated.

GIVE POWER OF ATTORNEY ONLY TO SOMEONE YOU ABSOLUTELY TRUST.

When Does the Power End? A durable POA ends automatically upon your death. So if you wish to have your agent also wind up your affairs after your death, you need to create a will and name that person as your executor. A durable power of attorney can also end if:

You are mentally competent and choose to revoke the POA.

A court concludes that you signed the authorization while you were incompetent, under undue influence, or a victim of fraud, and therefore renders the POA invalid.

The agent you choose is unavailable, unless an alternate is named.

You get a divorce. This applies if your spouse is your agent and you live in one of several states where a divorce automatically terminates the POA.

If You’re Married: Your spouse has some authority over property that you own together. He or she can pay bills from a joint account and manage investments in a jointly owned brokerage account. But in most states, spouses are limited in their abilities to buy or sell co-owned property without consent of both parties. And if any property is in your name only, your spouse generally has no legal authority to act without a durable power of attorney.

Getting Your Ducks in a Row

Whether young, middle-aged, or approaching the golden years, everyone needs to give some thought to the future. Obviously, the need increases as you get older. An arrangement such as a power of attorney is a simple way to smooth out bumps before they arise. Contact your attorney to learn more.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

ESTATE PLAN RESOURCE

Estate Planning Advice

for Every Stage of Life.

Name an Understudy for Yourself with a Power of Attorney

Few images are as scary as imagining yourself incapacitated. Still, you should consider the possibility that in your absence, someone else will have to take care of business and make important decisions.

Enter the “power of attorney.” Here’s what you need to know about this important legal document.

As the “principal,” you choose someone (often called your “agent” or “attorney in fact”) to perform certain tasks for you. Once your agent or attorney in fact makes decisions, you agree to be bound by his or her acts. You can grant one-time permission to fill in for you (a regular or limited power) or give a power with no expiration date (a durable power).

Why take this step? Because if you don’t, the court may assign someone to make decisions for you. You may not agree with them and they could involve time, money, a judge and court-driven red tape. A power of attorney is the simplest, cheapest way of naming an agent for yourself.

Most appointments give your agent power of either health or financial issues – and these are usually handled in separate documents. An agent must be over 18 and capable of accepting the appointment. Your agent or attorney in fact is expected to be honest, reasonable, and avoid conflicts of interest.

Medical or Health Care Power

A power of attorney for medical decisions or health care proxy gives your agent permission to make health decisions such as picking a health-care provider or hospital, paying medical premiums, keeping track of insurance claims and looking into different treatment options. As the one granting powers, you can include only those with which you’re comfortable. The conventional wisdom is that adults over the age of 50 should have one.

Note: A medical power of attorney or health care proxy is not the same as a living will although the two documents are often used in conjunction with one another. For more information, read our previous article, “The Importance of a Living Will.”

Financial Power

A power of attorney for financial issues, as you might expect, gives your agent discretion to handle a wide variety of tasks including investing, paying bills, handling taxes, collecting benefits and buying and selling real estate. In recent years, because of abuses, courts have required strict documentation to show you provided decision making capability to your attorney in fact — especially as it pertains to gifts.

If you’re a small business owner, your agent or attorney in fact can get involved in day-to-day operations like hiring and controlling inventory during your absence.

Banks, brokerage firms, credit card companies and anyone else that you normally do business with can rely on a properly-drawn power of attorney. However, many banks require that you sign their own power of attorney.

Operational Details

Can you appoint more than one agent or attorney in fact? Yes. Some people appoint one person and name another as a successor/backup. And sometimes, people name more than one person (for example, three children appointed as co-attorneys). This can spread out the decision-making and cut down on disputes. Be sure to specify whether co-agents can act independently or together, and how disagreements should be resolved.

A well-drawn power of attorney can give you peace of mind, both personally and professionally — even if disaster never strikes. Consult with your attorney about your situation.

Setting it Up

The process of appointing an agent or attorney in fact is similar for both types (medical and financial):

1. Choose an agent. While power of attorney laws vary from state to state, the person should be someone who lives in your state and someone whom you trust.

2. Draft the power. Consult with your estate planning attorney about the best way to do this.

3. Figure out what to delegate. Look at the rest of your personal and business documents, and make sure the power’s consistent with them.

4. Decide when the power will take effect.

5. Observe formalities. Sign the power properly, have it witnessed and, depending on your state law, consider recording it, especially if you own real estate.

Have an estate planning question or concern? Please let us know! Call us at 630.665.2300 or click the button to schedule a complimentary consultation.

Category: Power of Attorney