Posted On: June 7th 2016
Estate planning typically focuses on what happens to a person’s children and assets when he or she dies. But it’s equally important (some might say more important) that a person have a plan for making critical financial and medical decisions if he or she becomes incapacitated. A crucial component of this plan is the power of attorney (POA). This article defines a POA and explains the difference between a springing and durable POA. A sidebar explains the difference between a health care power of attorney and a living will.
Estate planning typically focuses on what happens to your children and your assets when you die. But it’s equally important (some might say more important) to have a plan for making critical financial and medical decisions if you’re unable to make those decisions yourself.
A crucial component of this plan is the power of attorney (POA). A POA appoints a trusted representative to make medical or financial decisions on your behalf in the event an accident or illness renders you unconscious or mentally incapacitated. Without it, your loved ones would have to petition a court for guardianship or conservatorship, a costly process that can delay urgent decisions.
A question that people often struggle with is whether a POA should be springing — that is, effective when certain conditions are met — or durable; that is, effective immediately.
A POA is a document under which you, as “principal,” authorize a representative to be your “agent” or “attorney-in-fact,” to act on your behalf. Typically, separate POAs are executed for health care and property.
A POA for health care authorizes your agent — often, a spouse, child or other family member — to make medical decisions on your behalf or consent to or discontinue medical treatment when you’re unable to do so. Depending on the state you live in, the document may also be known as a medical power of attorney or health care proxy. Be aware that a POA for health care is distinguishable from a “living will.” (See the sidebar “Make your wishes known with a living will.”)
A POA for property appoints an agent to manage your investments, pay your bills, file tax returns, continue your practice of making annual charitable and family gifts, and otherwise handle your finances, subject to limitations you establish.
Generally, POAs come in two forms: durable, or non-springing — that is, effective immediately — and springing; that is, effective on the occurrence of specified conditions. Typically, springing powers take effect when the principal becomes mentally incapacitated, comatose, or otherwise unable to act for himself or herself.
A potential disadvantage to a durable POA — and the main reason some people opt for a springing POA — is the concern that your agent may be tempted to abuse his or her authority or commit fraud. But consider this: If you don’t trust your agent enough to give him or her a POA that takes effect immediately, how does delaying its effect until you’re deemed incapacitated solve the problem? Arguably, the risk of fraud or abuse is even greater at that time because you’re unable to protect yourself.
Given the advantages of a durable POA, and the potential delays associated with a springing POA, it’s usually preferable to use a durable POA and to make sure the person you name as agent is someone you trust unconditionally. If you’re still uncomfortable handing over a POA that takes effect immediately, consider signing a durable POA but have your attorney or other trusted advisor hold it and deliver it to your agent when needed. This approach gives you peace of mind while still enabling your agent to act quickly when immediate action is required.
To ensure that your health care and financial wishes are carried out, prepare and sign POAs as soon as possible and make sure your loved ones know where they are and that they’re readily accessible when needed. Health care providers and financial institutions may be reluctant to honor POAs that were executed years or decades earlier, so it’s a good idea to sign new documents periodically.
Sidebar: Make your wishes known with a living will A health care power of attorney appoints a surrogate to make medical decisions on your behalf if you’re unable to do so. A living will, allows you to express your preferences for the use of life-sustaining medical procedures. For example, it might spell out the circumstances under which health care providers should use or withhold CPR, artificial feeding and breathing, surgery, invasive diagnostic tests, or pain medication.
Many people use both documents: a living will to guide health care professionals in making medical decisions in life-or-death situations, and a health care POA that authorizes a surrogate to make any necessary judgment calls.