What is a Power of Attorney and Why Is It So Important to Have This Estate Planning Document?

The benefits of a highly detailed, comprehensive power of attorney are numerous. A power of attorney is a document that appoints an agent to act on behalf of the principal. The “principal” is the person who is creating the power of attorney. The principal is appointing an “agent” to have the authority to take legal or financial action on the principal’s behalf. Any action taken by the agent, must be for the benefit of and in the best interest of the principal. A power of attorney not only ensures that there is someone that can handle a person’s legal and financial affairs if they cannot, but also gives the principal the control to choose who that person will be.

A Power of Attorney is specifically useful when a person loses capacity as a result of illness or dementia in old age. Unfortunately, many powers of attorney that are not drafted by an Elder Law attorney, are more general in nature and don’t include specific provisions needed to successfully address the legal and financial needs of our senior population. Once a person has no capacity, it is too late to create a power of attorney. Without a power of attorney, if the person loses capacity no one can take care of a person’s legal and financial matters unless their loved ones seek guardianship through the court system. Guardianship proceedings can take months, can be very expensive, and ultimately, a court determines the guardian.

This post will discuss the benefits of a comprehensive, detailed power of attorney, including some of the provisions that should be included.

It is crucial to emphasize that the proper use of a power of attorney as an estate planning and elder law document depends on the reliability and honesty of the appointed agent. There is naturally a concern about potential financial exploitation with a power of attorney, but even though such risks exist with a power of attorney, there are great benefits to one individual (the principal) privately empowering another person (the agent) to act on the principal’s behalf to perform certain financial functions. Of course, it therefore must be stressed that the agent chosen by the principal must be a reliable, honest and trustworthy choice.

Another important preliminary consideration about powers of attorney is “durability.” Powers of attorney are voluntary delegations of authority by the principal to the agent. The principal has not given up his or her own power to do these same functions but has granted legal authority to the agent to perform various tasks on the principal’s behalf.

Having covered the explanation of what a durable power of attorney is, let us look at the top benefits of having a comprehensive durable power of attorney.

1. Provides the ability to choose who will make decisions for you (rather than a court).

If someone has signed a power of attorney and later becomes incapacitated and unable to make decisions, the agent named can step into the shoes of the incapacitated person and make important financial decisions. Without a power of attorney, a guardianship or conservatorship may need to be established, which involves the court system, delays the ability of loved ones to provide what could be urgently needed assistance to the incapacitated person, and can certainly be very expensive.

2. Avoids the necessity of a guardianship or conservatorship.

Someone who does not have a comprehensive power of attorney at the time they become incapacitated would have no alternative than to have someone else petition the court to appoint a guardian or conservator. The court will choose who is appointed to manage the financial and/or health affairs of the incapacitated person, and the court will continue to monitor the situation as long as the incapacitated person is alive. While not only a costly process, another detriment is the fact that the incapacitated person has no input on who will be appointed to serve.

3. Provides family members a good opportunity to discuss wishes and desires.

There is much thought and consideration that goes into the creation of a comprehensive power of attorney. One of the most important decisions is who will serve as the agent. When a parent or loved one makes the decision to sign a power of attorney, it is a good opportunity for the parent to discuss wishes and expectations with the family and, in particular, the person named as agent in the power of attorney.

4. The more comprehensive the power of attorney, the better.

As people age, their needs change and their power of attorney should reflect that. Seniors have concerns about long-term care, applying for government benefits to pay for care, as well as choosing the proper care providers. Without a power of attorney specifically allowing the agent to perform these tasks, an agent’s authority would be limited and precious time and money may be wasted.

5. Prevents delays in asset protection planning.

A comprehensive power of attorney should include all of the powers required to do effective asset protection planning. If the power of attorney does not include a specific power, it can greatly dampen the agent’s ability to complete the planning and could result in thousands of dollars lost. While some powers of attorney seem long, it is necessary to include all of the powers necessary to carry out proper planning. It is recommended to have an Elder Law Attorney prepare your power of attorney to ensure that the powers required to do effective asset protection planning are included.

6. Protects the agent from claims of financial abuse.

Comprehensive powers of attorney often allow the agent to make substantial gifts to self or others in order to carry out asset protection planning objectives. Without the power of attorney authorizing this, the agent (often a family member) could be at risk for financial abuse allegations.

7. Allows agents to talk to other agencies.

An agent under a power of attorney is often in the position of trying to reconcile bank charges, make arrangements for health care, engage professionals for services to be provided to the principal, and much more. Without a comprehensive power of attorney giving authority to the agent, many companies will refuse to disclose any information or provide services to the incapacitated person. This can result in a great deal of frustration on the part of the family, as well as lost time and money.

8. Allows an agent to perform planning and transactions to make the principal eligible for public benefits.

One could argue that transferring assets from the principal to others in order to make the principal eligible for public benefits—(i.e. Medicaid for long term care)-is not in the best interests of the principal, but rather in the best interests of the transferees. In fact, one reason that a comprehensive durable power of attorney is essential in elder law is that a Judge may not be willing to authorize a guardian to protect assets for others while enhancing the ward/protected person’s eligibility for public benefits. However, that may have been the wish of the incapacitated person and one that would remain unfulfilled if a power of attorney were not in place.

9. Provides immediate access to critical assets.

A well-crafted power of attorney includes provisions that allow the agent to access critical assets, such as the principal’s digital assets or safety deposit box, to continue to pay bills, access funds, etc. in a timely manner. Absent these provisions, court approval will be required before anyone can access these assets. Digital assets are also important because older powers of attorney did not address digital assets, yet more and more individuals have digital accounts.

10. Provides peace of mind for everyone involved.

Taking the time to sign a power of attorney lessens the burden on family members who would otherwise have to go to court to get authority for performing basic tasks, like writing a check or arranging for home health services. Knowing this has been taken care of in advance is of great comfort to families and loved ones.

Conclusion

In addition to this discussion of What is a Power of Attorney and Why Is It So Important to Have This Estate Planning Document, see my article Don’t Underestimate the Just in Case. Nobody can predict when they might need a Power of Attorney (if ever), and what specific actions an agent would need authority to do, therefore, it is so essential to have a comprehensive power of attorney to be prepared for all possible situations. Every situation is unique and what might never be needed for one person, may be a crucial provision in the Power of Attorney for another person. The planning goal is to have a power of attorney in place that empowers a succession of trustworthy agents to do whatever needs to be done in the future.

Please call us if you would like us to review your existing power of attorney or are ready to prepare a new power of attorney today.

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2019-05-03T18:38:02+00:00