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 estate planning 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."
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.
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.
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.
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.