Less than 50 percent of U.S. adults have any kind of estate plan in place, and this is in large part due to a general misunderstanding of what an estate plan does. Estate planning is not— despite popular misconception—a task you attend to in old age or ill health. On the contrary, it is a set of documents that protect you and your loved ones for the duration of your adult life. Most people think about the Last Will and Testament when they think about estate planning. While that document plays an important role, so too do power of attorney (POA) documents, and because these are less well-known, this article will center on explaining exactly what they are.
The Two Types of Power of Attorney
POA refers to the legal authority one person (the principal) grants another (the agent) to act on their behalf. In general, this authority pertains to either financial or medical matters, and separate legal documents exist for each purpose. A medical POA acts to ensure you receive proper care should you suffer incapacitating injury or become incompetent, while a financial POA serves a range of purposes all of which relate to your financial well-being. Both types of POA are discussed in detail below.
Medical Power of Attorney
As just mentioned, a medical POA—sometimes referred to as a healthcare proxy—acts as an important protection against incapacitating injury or incompetency. In addition, it plays a crucial role should complications arise during surgery, or if you need regular help due to a long-term condition. The authority granted by a medical POA is usually broad, though you can provide as specific of care instructions as you wish when drafting the document. These are usually paired with a Living Will and the two documents together are known as an Advance Directive for Healthcare.
When you sign a medical POA you designate an agent to act on your behalf. Any competent adult may serve in this role, though some states exclude your physician, residential healthcare provider, or any of either’s employees from being eligible. When choosing an agent, it is important that you consider a person whom you both trust and believe is capable of making difficult choices and advocating strongly on your behalf.
Financial Power of Attorney
Just like the above, a financial POA allows you to appoint an agent to handle your affairs in your stead, though in this instance the authority granted pertains to financial rather than medical matters. A financial POA can be limited or general and, further, its powers can be designed to terminate or remain in force should you suffer an incapacitating accident or become incompetent.
1. Limited Power of Attorney
This type of POA is used when, for instance, you are out of town and need someone to sign a real estate purchase or perform some other type of transaction on your behalf. When drafting a limited POA it is critical that its purpose be clear. Once this purpose is complete, the authority granted by the POA ends.
2. General Power of Attorney
A general POA grants broad powers. Your designated agent gains the authority to perform virtually any financial transaction on your behalf, including conducting business deals, buying life insurance, settling claims, paying bills, and so on. A general POA is used if you will be out of the country for an extended period or are physically or mentally incapable of managing your affairs. Should you suffer incapacitating injury, the authority granted by a general POA automatically terminates.
3. Durable Power of Attorney
A durable POA is much like a general POA except that the authority it grants remains valid even if you do become incapacitated or incompetent. Indeed, a durable POA acts to protect you in this precise situation. If you end up hospitalized, your bills will still need to be paid and your finances managed, after all. A General Durable Power of Attorney is on of the most important estate planning documents you can have. It allows a trusted loved one to make financial decisions for you if you are no longer able to do so.
4. Springing Power of Attorney
A springing POA also grants your agent general authority over your finances but, unlike the previous examples, only comes into effect when a triggering event such as incapacitating injury occurs. This feature makes a springing POA a good option for those uncomfortable with granting durable POA that goes into effect immediately, and yet it is not without risk. Unless described in unambiguous, clear language, the triggering event may not be recognized as such, leaving you without the protection of a POA just when you need it most. The most common “triggering event” is that your doctor writes a letter explaining that you no longer have the mental capacity to make decision on your own and you need someone else to do so.
To learn more about the different types of power of attorney or to simply talk about any matter related to estate planning, do not hesitate to call Miller Estate and Elder Law at 256-251-2137 or to reach out using the contact form on our website.
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