Three years ago, my brother had a stroke.
He and his wife, who predeceased him, only had a simple will leaving their assets to each other. While he was in the hospital it was a harrowing experience for his three daughters, because he did not have a basic estate plan in place. Who had the power to make medical decisions for him? Who would take care of his financial affairs and make the financial arrangements for medical procedures that he would need? Fortunately, my brother recovered from the stroke and he was able to put his basic estate plan in place.
“Ninety percent of the population does not have an up-to-date estate plan. Not having a general power of attorney and a health care power can cause family conflicts and delays in critical medical treatment,” states Attorney William Smith. “This is important planning and any adult that can afford to read this newspaper should have a basic estate plan.”
What is a power of attorney?
A power of attorney is an authorization to act on someone else’s behalf in a legal or business matter. The person giving the authorization is called the grantor or principal. The person or entity receiving the authorization is called the agent or attorney-in-fact. A power of attorney can be general and cover a wide range of activities or it can be limited in scope and cover only a specific act. A power of attorney is only in effect while the grantor is alive. After death, an individual’s will or the state’s laws of descent and distribution will take effect.
The two most common forms that may be included in a basic estate plan are:
A durable power of attorney, which allows an individual to appoint someone to handle their financial affairs, should they become incapacitated or unable to manage the finances. Having a valid durable power of attorney can help the family avoid having a guardian or conservator appointed by the court during an individual’s illness.
Or a durable health care power of attorney, which empowers the agent to make health care related decisions for the grantor while they are incapacitated. This could include a full range of medical decisions from routine care to life-sustaining treatment.
Sometimes there is confusion about the difference between a durable health care power of attorney and a living will. A living will only describes the grantors wishes concerning life-sustaining procedures, but it does not give another person the power to make medical decisions.
There are several important decisions the grantor has to make when creating a power of attorney:
n Choosing an agent. The persons authorized to be the agent has to be someone that the grantor trusts. The agent is a “fiduciary” and is legally bound to act with the highest degree of good faith on the behalf of the grantor. Besides trust the agent has to understand the grantors wishes, have the time and energy to perform the required tasks and be knowledgeable. Also, the grantor should consider a successor agent in the event the appointed agent predeceases the grantor or becomes incapacitated.
n When does the power take effect? The grantor has to decide when the power takes effect? A springing power of attorney is a power that only takes effect after the incapacity of the grantor or some other future event.
n How long is the power in effect? The grantor has the right to determine the length of time the power is in effect. If the grantor is of sound mind, they can revoke the power at any time. A power of attorney ends at the grantors death.
n Should a power of attorney be recorded? A power of attorney does not have to be recorded, although many attorneys do recommend governmental recording. The power of attorney should be discussed with the agent, close relatives and kept in a secure place that is accessible without a court order.
An incapacitating accident or sudden illness can strike anyone at any time. These can be traumatizing events for loved ones. Having powers of attorney in place provides them with the tools to make the best decisions in a timely fashion.
Michael G. Shinn, CFP, Registered Representative of and securities and investment advisory services offered through Financial Network Investment Corporation, member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to email@example.com. © Michael G. Shinn 2009. Neither Michael Shinn nor Financial Network provides legal advice. Please consult a legal professional before implementing any strategy.