THE NECESSITY OF FINANCIAL POWER OF ATTORNEY
August 26, 2016
By Cory Howes
As we grow older, the likelihood that we will face some sort of incapacity due to debilitating illness or prolonged hospitalization grows much greater. The likelihood of our incapacity makes the financial power of attorney an essential part of estate planning for older Americans.
Simply put, the purpose of a financial power of attorney is in the name. This document is quite powerful, as it empowers someone to handle your finances and legal affairs—even the routine of paying your bills—if you become incapacitated. Estate attorneys structure the financial power of attorney in at least two ways—a durable power of attorney that’s active as soon as the maker signs it, as well as what we call a “springing” power of attorney that becomes effective when the principal becomes incapacitated.
The durable power of attorney is the most common method of protecting against incapacity. It’s simple to execute, and it gives the person or people you trust most immediate power over your finances. When using a springing power of attorney, it is also important to consider when you will be considered incapacitated for purposes of the document. There are several methods of “defining” incapacity, from requiring a court to issue an order declaring you incapacitated to allowing trusted family members make the decision. You can also rely on doctors’ opinions, although that method carries its own challenges. When you create a power of attorney, you should discuss how the incapacity determination is made with an experienced estate planning attorney.
We find that many people, as with purchasing health insurance or life insurance, are too caught up in their own invincibility to think about incapacity. But we don’t purchase insurance because of our present state—with auto insurance, we protect for an accident, not our current perfect driving record. So, too, should our motivations align for tomorrow’s struggles when we think about protecting for incapacity. We should carefully consider those whom we trust with our lives and our livelihood, empowering the right person—strong and prudent—to manage our affairs should we face a debilitating accident or diagnosis.
Lastly, not all powers of attorney are the same. For estate planning purposes, you generally want a very broad power of attorney that grants your agent wide latitude in dealing with unexpected circumstances. It should be drafted in a manner that is compliant with Social Security’s requirements, and it should include appropriate gifting powers and powers related to asset protection and Medicaid planning. If your power of attorney is missing certain provisions, it could limit your agent’s ability to protect and effectively manage your assets.
For more information on obtaining a financial power of attorney and other core documents to complete an effective estate plan for your life and death, please contact the Forrest Firm attorney Cory Howes for a consultation today.