Estate Planning Basics: Who will make your Financial and Healthcare Decisions if you can't?
When people think of estate planning, they often think of wills and trusts; more generally, they think about what will happen when they die - who will be appointed guardian for their minor children, and who will inherit their assets. Although it is certainly true that these are important decisions that have to be made, a comprehensive estate plan will also include a Durable Power of Attorney-Healthcare and a Durable Power of Attorney-Financial.
In general, a power of attorney allows one person (the principal) to appoint another (the agent) to act on his or her behalf. A "durable" power of attorney is effective even after the principal is declared mentally incompetent, unlike a "non-durable" power of attorney, which is effective until the principal is declared mentally incompetent. In fact, for estate planning purposes, providing for one's care upon declaration of mental incompetence is the primary reason a durable power of attorney is used. There are many different types of powers of attorney - this article will focus on two: the Durable Power of Attorney-Healthcare and the Durable Power of Attorney-Financial.
A Durable Power of Attorney-Healthcare is typically written so that it becomes effective if and when the principal is declared mentally incompetent, typically due to illness or injury. The purpose of this document is for the principal to choose an agent to make medical decisions for himself or herself in the event the principal is no longer able to do so.
The agent will be given as much or as little authority to make decisions regarding the principal's medical treatment as is specified in the document. This decision-making authority may also include the ability to refuse or terminate the principal's medical treatment. A Durable Power of Attorney-Healthcare is not limited in duration by law; however, the principal can limit the duration when the document is created. If no duration is specified in the document, it becomes ineffective if and when the principal is later declared mentally competent, or upon the principal's death.
A Durable Power of Attorney-Financial is also usually written so that it becomes effective if and when the principal is declared mentally incompetent. A Durable Power of Attorney-Financial is used to give an agent the authority to make financial decisions for a mentally incompetent principal. The agent is typically given the authority to access bank and investment accounts for the purpose of paying bills and handling other day-to-day financial transactions. The agent may also be given the authority to buy and sell property on behalf of the principal.
A well-written document will specify in detail the precise amount of authority that should be given to the agent. And similar to a Durable Power of Attorney-Healthcare, a Durable Power of Attorney-Financial is not limited in duration by law. If no duration is specified in the document, it becomes ineffective if and when the principal is later declared mentally competent, or upon the principal's death.
In conclusion, a comprehensive estate plan should include two documents that are meant to protect a person during his or her lifetime - a Durable Power of Attorney-Healthcare and a Durable Power of Attorney-Financial.
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