July 12, 2016
Power of Attorney: Protecting your finances in the event of incapacity
A proper estate plan generally consist of five documents, one of which is a Power of Attorney. We have taken the time to highlight some of the advantages and practical considerations associated with Powers of Attorney.
With the coming of age is the realization that one day you may no longer be able to make decisions and care for yourself. Yet still, more people are concerned with how their assets will be distributed at death. As a result, more people have properly executed Last Will and Testaments, or have purchased Life Insurance policies, than they do Powers of Attorneys. Long-term incapacity is not an easy fate to consider, but it must be prepared for.
(Read more: Life Care Planning)
A Power of Attorney is a document in which the Principal gives the Agent or attorney the legal authority and power to act on his or her behalf. The grant of authority can be limited to particular acts, or it can range broader in scope allowing your agent to handle legal and financial matters. By appointing the person you want to act on your behalf if you become incapacitated, you can spell out specific instructions for your agent to follow in managing your personal care or property.
If a Power is not properly executed, most frequently the family members, with the assistance of a lawyer, will petition the court in a guardianship action which is a very lengthy, expensive and humiliating process.
(Read more: Trying to Understand Alzheimer’s Memory Loss)
Generally, there are two types of Powers of Attorney. A ‘durable” Power takes effect the moment the document is executed, and continues even if the principal subsequently becomes disabled or incompetent due to sickness, accident or age. The document must include language that “This power of attorney will remain effective despite the subsequent disability of the principal.” At the time of the principal’s death, the grant of authority terminates but can be revoked by the principal at any time during capacity. It is imperative to select an agent that is trustworthy like a spouse, child, or long time friend.
The second type is known as a “springing” Power. This document becomes effective only in the event the principal becomes disabled. This type of power can lead to a number of problems, and may want to be avoided in favor of a “durable” Power.
(Read more: Long-term Care: Rising Costs and Potential Savings)
Before executing a Power of Attorney it is critical you discuss it with an attorney who specializes in the area of Elder Law and Estate Planning.