As you create your estate plan, your main objectives likely revolve around your family, both current and future generations. Your goals may include reducing estate tax liability so that you can pass as much wealth as possible to your loved ones.
But it’s also critical to think about yourself. What if you’re unable to make financial and medical decisions? To address this risk, powers of attorney (POA) for property and health care are crucial components to include in your estate plan.
What is a POA?
A POA is defined as a legal document authorizing another person to act on your behalf. This person is referred to as the “attorney-in-fact” or “agent” — or sometimes by the same name as the document, “power of attorney.” Generally, there are separate POAs for property and health care.
Be aware that a POA is no longer valid if you become incapacitated. For many people, this is actually when the authorization is needed the most. Therefore, to thwart dire circumstances, you can adopt a “durable” POA.
A durable POA remains in effect if you become incapacitated and terminates only on your death. Thus, it’s generally preferable to a regular POA. The document must include specific language required under state law to qualify as a durable POA.
Who should you name as POA?
Despite the name, your POA doesn’t necessarily have to be an attorney, although that’s an option. Typically, in the case of POAs for property, the designated agent is either a professional, such as an attorney, CPA or financial planner, or a family member or close friend. In any event, the person should be someone you trust implicitly and who is adept at financial matters. In the case of health care POAs, a family member or close friend is the most common choice.
Regardless of whom you choose, it’s important to name a successor agent in case your top choice is unable to fulfill the duties or predeceases you.
Usually, the POA will simply continue until death. However, you may revoke a POA — whether it’s durable or not — at any time and for any reason. If you’ve had a change of heart, notify the agent in writing about the revocation. In addition, notify other parties who may be affected.
How does a health care POA differ from a living will?
A durable POA for health care can, for instance, establish the terms for determining whether you’re incapacitated. It’s important that you discuss these matters in detail with your agent to give more direction on your wishes.
Don’t confuse a health care POA with a living will. A durable POA gives another person the power to make health care decisions in your best interests. In contrast, a living will provides specific directions concerning end-of-life decisions.
To ensure that your health care and financial wishes are carried out, consider preparing and signing POAs as soon as possible. Also, don’t forget to let your family know how to gain access to the POAs in case of emergency. Finally, health care providers and financial institutions may be reluctant to honor a POA that was executed years or decades earlier. So, it’s a good idea to sign new documents periodically.