Completing estate documents can be a daunting task. Who will inherit the wealth you worked so hard to accumulate? Though wills are important documents, don’t overlook other, equally important “super power” documents such as medical and financial powers of attorney.
While most estate planning seeks to direct what will happen after you pass away, medical and financial powers of attorney enable someone (the agent) to act on your behalf while you are still living. Common scenarios that require a power of attorney may be as dramatic as an illness or event that causes physical or mental incapacitation, or as ordinary as just being out of town and not having the capability to sign a time-sensitive document back at home.
One of the primary reasons to establish power of attorney documents is to avoid guardianship, a court-driven process that occurs when an individual is no longer able to govern his or her own affairs. If no power of attorney document exists when a need arises, the court system has the responsibility and authority to appoint a guardian to act on your behalf. The upside of this process is that you will have legal representation even amid mentally or physically incapacitating events; the downside is that the guardianship process takes time, it is expensive, and it requires the guardian to seek court approval for all non-routine matters. In addition, guardians must submit regular accountings to the court, and the very existence of an outside guardian can cause family turmoil.
Ask yourself, “If a guardian of some sort becomes necessary as I age, do I want to name my own agent(s) or do I want leave that decision to the courts?” The answer is usually very clearly in favor of appointing your own agent. Fortunately, by naming your own agent(s) and giving them broad powers you can eliminate the likelihood of guardianship.
To complete the documents, you will designate someone as the agent in each power of attorney; they may or may not be the same person for both documents. The agent you name in a medical power of attorney will be able to make medical decisions on your behalf if you are mentally incapacitated or in a situation where you are temporarily unable to give consent for medical care. Alternatively, the person you name in a financial power of attorney will be able to make decisions on your behalf in financial matters. Both documents should be durable, meaning they will go into effect when the documents are signed, will last through an event of incapacity, and will remain in effect until revoked.
Many powers of attorney also include a “springing clause”. This means the document will not “spring” into effect until an event of incapacity. The springing clause requires a medical professional to make a determination of incapacity before your agent is able to act. In this situation, no one will be allowed to intervene on your behalf until that documentation is complete.
As mentioned previously, the individuals you name as your medical and financial power of attorneys can be different people (think of a scenario where a parent has one child who is a financial planner and the other child a physician, though your appointment decisions aren’t likely to be that simple!) The most important criteria when choosing a power of attorney is to name someone who has your best interest in mind, has the capability and time to serve, and is willing to act when necessary. You may include as many individuals as you feel comfortable naming and you may allow them to act individually, or require two or more to act jointly. Talk to your attorney about the different options.
Like all estate planning documents, it is important to review your paperwork every few years to verify that no new life events triggered (or will trigger) important changes. If you find you need to change your agent, it is important to note in the new documents that the prior appointed agent’s powers have been revoked – if this is your desire.
Make sure the individuals you choose as agents know that you have named them and are aware of where you keep the documents. Give them copies now if you feel comfortable doing so, a step which could significantly cut down on additional stress later when they are caring for you and your affairs.
Disclosure: SYM Financial Corporation (“SYM”) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about SYM, including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.