In general, estate planning benefits not only the principal’s life, but also the lives of their family members and agents. Prior planning includes wills, trusts, health care proxies, advanced health care directives and durable powers of attorney provide direction, guidelines, and leaves little to no guessing for loved ones. Powers of attorney, specifically, can benefit one’s life by identifying powers, establishing protective measures, and naming agents.
A power of attorney is a typical aspect of estate planning. The document allows the principal to choose an agent (or agents) to manage the principal’s financial affairs. The agent (also known as “attorney-in-fact”) typically becomes empowered with decision-making authority when the principal signs the document. In other scenarios, the attorney-in-fact can act with concurrent decision-making with the principal. Another option in creating a power of attorney includes a springing power of attorney, which only becomes effective if the principal is incapacitated. There are various options to consider when making decisions for attorney-in-fact [“Power of Attorney – what are our options”].
The principal may grant broad financial powers or limited financial powers. Various powers may be conferred, including bill paying, management of investments, transfers of assets, real property oversight, ability to make changes to estate plans, and maintaining bank accounts. Powers can be as broad or as limited as the principal wishes. The granting of broad powers to an attorney-in-fact benefits the principal’s life in different ways. Specifying broad powers now means the principal does not need to amend or change powers in the future if more assistance is required. Allowing another to manage bill paying or maintain bank accounts simply gives the principal peace of mind if he or she can no longer perform those tasks. Identifying certain banking powers in advance and providing your local bank with records reflecting this appointment will make for a smooth process when dealing with financial institutions.
Clarifying and identifying powers and authority also makes the agent’s job much more manageable if and when the principal can no longer communicate wishes. Unclear and severely limited terms used in a power of attorney leave the principal unprotected and their assets in jeopardy. Counsel and the court may ultimately become involved if a power of attorney document leaves the agent wondering what exactly they are allowed to do on behalf of the principal. Vague terms cost the family money, and cost time that the principal may not have if incapacitated. It is critical to remember that a power of attorney is only effective during the principal’s lifetime.
A power of attorney document also allows the principal to create protective measures and name their future guardians and conservators. Establishing the principal’s agents and wishes early on helps protect the principal and avoid conflict between family members. Without prior nominations, court intervention may be required when children need to act on behalf of a parent for financial decisions. Children with aging parents sometimes need to become involved with the management of significant assets quickly, but are unable to do so because their parent did not create a power of attorney or nominate a conservator. As a result, children are forced into court to obtain the necessary powers to protect their parent.
An important distinction exists between a health care proxy and a power of attorney. A health care proxy is an agent named in estate planning documents to make medical and health care decisions for the principal. A health care proxy typically does not begin to make medical decisions until the principal is deemed incapacitated. A power of attorney does not impact medical care decisions, but instead only affects financial decisions. A good estate planning attorney will recommend both.