By U.S. News & World Report, originally published by WTOP News.
When it comes to a power of attorney document, you don’t seem to need it — until you suddenly, desperately do.
Designating a power of attorney is crucial to creating a strong financial plan, but you might be surprised to learn many experts recommend that this power be named as soon as individuals turn 18 years old.
Power of attorney allows a third party, known as the attorney-in-fact or the agent, to make financial, legal and sometimes health decisions on someone’s behalf. Without a power of attorney, loved ones can be rendered unable to manage the health care decisions and finances of any adult who is unable to do so themselves — whether that individual is a 19-year-old car accident victim or a 90-year-old needing nursing home care.
From the moment you turn 18, you need this. It’s my 18-year-olds who are the most upset when they learn about this, because they assume mom and dad would be able to step in and make those decisions, but that’s not the case. They have no legal authority the moment that child turns 18.
– Jennifer D. Taddeo
When it’s time to designate power of attorney, it’s important to know your own state laws as rules can vary, though David M. Postic, an estate planning attorney at Postic & Bates in Oklahoma City, says states are generally working from the same fundamental principles.
To get started, follow these basic guidelines for designating power of attorney:
- How to set up power of attorney.
- Consider durable power of attorney.
- Limited vs. general power of attorney.
- Immediately effective vs. springing power of attorney.
- Power of attorney for health care.
How to Set Up Power of Attorney
The first step to setting up power of attorney is deciding who should receive that designation and the responsibility that comes with it. The individual chosen as your power of attorney should be trustworthy, organized and calm under pressure, Taddeo says.
Once you’ve given some thought to who might serve as your power of attorney, it’s time to have the document drafted. Consumers can use online sites to draft this document or contact an estate planning attorney. The power of attorney document typically works in conjunction with other estate planning and medical documents, such as a will, health care proxy and medical information privacy authorization.
Once the document is drafted, Taddeo says clients should be cautious about who receives a copy of the document and where the document is stored, particularly if the power of attorney is effective immediately.
I give my clients the rule of 1-2-3: One original, and that one original is going to name two people, a primary attorney in fact and a secondary attorney in fact. And they’re going to keep that one original naming two people in three places: their fire safe, a safety deposit box at a bank, or if they don’t have a place for it, we will hold it for them in our fireproof safe. This is a way to limit the power of that really powerful document.
– Jennifer D. Taddeo
The last step to setting up a power of attorney is maintaining that document. Some financial institutions will refuse to honor a power of attorney document that they consider out-of-date, so some estate planning attorneys ask their clients to review and update the power of attorney document every three to five years — though this isn’t always necessary. The document should also be updated whenever there is a birth, death, marriage or major financial event in the family, Taddeo says.
Consider Durable Power of Attorney
Powers of attorney typically end when the principal becomes unable to make decisions on his or her own — but this is precisely the moment individuals may want a trusted agent to act on their behalf.
For this reason, a durable power of attorney can be very useful. Agents named in a durable power of attorney can make financial or medical decisions on the principal’s behalf even after the individual becomes incapacitated.
Immediately Effective vs. Springing Power of Attorney
Individuals have the option to create a power of attorney that is effective immediately upon their signature or that takes effect only under predetermined circumstances, such as in cases where the principal becomes incapacitated. This option is called a springing power of attorney.
It may seem very appealing, but some estate planning attorneys offer words of caution for those planning to go the route of the springing power of attorney.
“I usually recommend for people to forgo the springing power of attorney and simply have the power of attorney that’s immediate,” Postic says. “If there’s a springing power of attorney, which means it comes into affect at the time the person becomes incapacitated, whoever’s trying to act on the principal’s behalf, they need some sort of medical evaluation. A lot of times that medical evaluation doesn’t come quickly, and certainly, whenever someone is needing to use health care power of attorney, time is of the essence.”
Limited vs. General Power of Attorney
Some individuals may only want to designate power of attorney for a set of limited circumstances. A limited or special power of attorney allows the agent to complete only certain transactions, such as selling a piece of property, without granting them more general privileges.
A general power of attorney gives the agent wide-reaching financial, legal and sometimes health authority. This is the route recommended in most cases by William D. Kirchick, president of the National Association of Estate Planners and Councils and partner in the private client department at Nutter in Boston, because he says the limits placed on an agent can sometimes do more harm than good.
“Some states like New York have a checklist of what you want (the agent) to do or not want them to do,” Kirchick says. “If you’re going to give the person the authority, I want them to have as much authority as possible because you don’t know what’s going to come up. If you don’t trust the person to do certain things, why are you giving them power of attorney in the first place?”
Power of Attorney for Health Care
Finally, individuals should consider including a medical power of attorney in their power of attorney planning. This individual, also known as the health care proxy, should know your medical wishes and be trusted to make medical decisions on your behalf.
It can be useful for the power of attorney and health care proxy to work closely together, Kirchick says, as the power of attorney is often responsible for ensuring medical bills and nursing home bills are paid but should also be made aware of the individual’s desire for treatment and living arrangements.
This article was authored and originally published by WTOP News. See the article source here.
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