Sometimes, as we get older, it can become difficult for us to take care of our own finances. It may be a matter of deteriorating physical health that makes it difficult to get out to meet with our banker, investment advisor, handle real estate matters, or make decisions.
To help us through these situations the law recognizes that we may need to appoint someone to act for us. The document that is used is a Power of Attorney, by which a person authorizes one or more people to act for them in various types of legal matters, from finance to real estate. The person appointing someone to act for them is called the “principal” and the person appointed is called the “agent”.
As principal, you can give your agent authority to act for you in a particular matter – such as at a real estate closing that you cannot attend or a “general” power to act in any and all matters.
The power of your agent to act begins when the Power of Attorney document is properly executed by you. Then there is the question: When does the power of the agent end? The law recognizes that the power of the agent to act for the principal flows from the ability of principal to act for themselves, so a Power of Attorney cannot be used after a principal dies or loses mental capacity.
What About Those Affected by Dementia?
Sometimes individuals become affected by Alzheimer’s or other mental disability after they have executed a Power of Attorney. Fortunately, the law permits an agent to continue to act for a principal who has lost their mental capacity to act for themselves – provided specific language is used in the document. A Power of Attorney containing this language is called a “Durable Power of Attorney”.
Can I Still Make Decisions for Myself?
Yes. Even if you give another person the right to act for you under a Power of Attorney, you can still act for yourself. You can also direct your agent to act in a particular manner. However, it is important to know that under a general Power of Attorney, the agent often has power to act contrary to your wishes. This is the main reason people are reluctant to execute a Power of Attorney until it is needed. The trouble is, they may find themselves unable to execute the document when they need it…. See below, “Is There a Solid Alternative?”.
What If the Law Changes, Will My Power of Attorney be Honored? What if I move?
In all cases the law requires certain basics for a Power of Attorney to be valid. Besides appointing specific agents and granting them specific or general powers, your signature must be properly notarized to authenticate that you in fact actually signed the document. In some States the Power of Attorney must also be accepted and signed by the agent.
If the law changes, rest easy. The law recognizes that you may not have the time or ability to execute a new Power of Attorney after the law has changed. The law permits a Power of Attorney – validly executed under old law – to continue to be used without the need to execute a new document. Similarly, the law generally permits a Power of Attorney valid in one State to be used in all States.
Although the law is clear, from time to time clients have presented a Power of Attorney and the recipient will refuse to honor it. Typically, it is a bank that is the culprit creating the problem. This can happen even if the banker sends the document to the bank’s legal department as it may land on the desk of someone who is inexperienced or unknowing. Usually (but not always) these matters are resolved easily. Be assured the document is valid and can be relied upon if you – or a parent or other principal – are unable to execute a new document because of aging, illness, or injury.
Health Care Proxy, Living Wills, and Advanced Directives…
As useful and powerful as a Power of Attorney may be, they are not geared for or usable in health care situations. At the heart of the issue is privacy. A person’s medical records are private and that privacy must be protected at all times. Whether it is as simple as dealing with an insurance claim, dealing with doctors, or obtaining medical records – or as complex as dealing with end of life care issues – the law needed to find a solution.
Most States now have laws permitting us to appoint someone to act for us in health care matters. The documents used, geared to particular goals, sometimes have multiple names such as Health Care Proxy, Living Will, and Advanced Directive, Durable Power of Attorney for Health Care.
Each of these documents authorizes a trusted person to act on your behalf in medical matters. Primarily you as the principal give specific authority to your agent to act for you in health matters. This includes day to day dealings such as obtaining medical records, engaging and dealing with doctors and hospitals, other facilities, and insurance companies.
You can also authorize your agent to make medical decisions – if you are unable to communicate your medical decisions for yourself. This typically comes up at the very end of a terminal illness, the end stages of dementia, or if someone is brain dead due to injury or illness. The document we have created contains certain specific provisions used to help assure your wishes are carried out, such as requiring your agent to carryout your wishes – not their own, and requiring your document be used as conclusive evidence of your intentions. It also directs that at the end of life, while you are not to be given treatments that only serve to prolong the process of dying, you are to be kept from pain and made comfortable always.
Similar to a Power of Attorney discussed above, the law requires certain basics for health care documents to be valid. That you appoint specific agents, granting them specific powers, that your signature must be properly witnessed and notarized to authenticate the document. Also, like the law under Powers of Attorney, when the law changes, it also recognizes the validly of documents executed under old law, and generally from State to State.
The Power of Attorney & Health Care Proxy vs. Using a Trust…
Together a Power of Attorney and Health Care Proxy authorize a person or persons to act in virtually all matters that may arise. Together they can be a very good – and cost effective – option in planning for our care and to assist in the care of parents. Why aren’t these used universally?
The Power of Attorney – A Matter of Trust?
There are many reasons. The prime reason is the fear that the person or persons appointed to act in the Power of Attorney may misuse their authority. Spouses who have spent a lifetime raising their children together almost universally trust their spouse to carry out their wishes. However, individuals tend to have less confidence in their spouse if one of the spouses has been married before or where one or both spouses may have children by someone else.
When a spouse cannot act due to death or infirmity, or other concerns, individuals turn to children. Here the feelings in play and thinking are entirely different. Parents may be concerned the child acting as their agent under the Power of Attorney might not manage the assets properly, that the child might sell their parents’ home and place the parent in an assisted living or a nursing facility against their will, or that the child might take or give away assets. Sometimes there are concerns that granting power to one child might create bad feelings or concerns among their siblings.
A Matter of Emotion?
Even if the child or children are trusted and already assisting parents – perhaps the child is a signatory on a checking account – a parent placing themselves fully in the hands of their child is a momentous act. To begin with, typically, the parent has over time been losing their independence. Add to that role reversal – up to now the parent was in charge and the child “born into” trusting their parent. The sudden loss of control can leave a person feeling very vulnerable, fearful, or overwhelmed. Parents reactions range from “I trust my children” or “who else do I have” to “I have no choice”.
Does the Power of Attorney Accomplish My Goals?
That depends on your goals. Even if your agent is trustworthy and manages your assets properly and there are no family or other issues, the assets may not be protected from creditors or satisfy Medicaid or catastrophic illness planning.
That is because a Power of Attorney is a broad authorization allowing your agent to act, it is not itself a plan.
Is There a Solid Alternative?
To solve these and other problems as we become unable or unwilling to handle our own affairs, a person can establish a Trust. As discussed in the prior sections, a trust is a far more powerful tool for accomplishing estate planning and asset protection goals, while restricting the actions of the Trustee to use the assets for your benefit while you are alive.
There is no one size fits all, each person’s facts and circumstances – financial, medical, family, and their goals – must be evaluated.
Where possible and practical, we generally recommend using a Will and Health Care Proxy. If a person is becoming unable or unwilling to act for themselves in financial and legal matters, the Power of Attorney can be added. If a person has concerns about the management of their assets, family issues, disabled family members, estate or income tax concerns – or if there is a medical condition on the horizon that might require home aid, assisted living, or nursing care, we recommend a Trust be considered.