In my previous article, I discussed wills, which are the first document in a complete estate plan.
Contrary to popular belief, a will does not provide any legal authority to handle your affairs while you are alive. So, to provide authority for individuals to manage your affairs while you are still alive, two other documents are needed for a complete estate plan. These documents are the power of attorney and the representation agreement.
The power of attorney, often called a POA, grants an individual or individuals authority over your financial affairs. Unlike a will, which only applies if you are dead, a POA applies while you are alive. It also applies if you are not incapacitated, unless you specify otherwise.
We typically advise clients to not restrict a POA to incapacity, as it adds a layer of complexity for the individual named on the POA. POA’s can be abused, so it is important to choose individuals you trust, and if there are multiple individuals, you need to consider whether they can work well together.
The POA is important because your loved ones, including your spouse and children, have no authority over your financial affairs without it. For example, they would be unable to sell your home to assist with the costs of care, or to access your bank accounts or investments that are held solely in your name.
The representation agreement grants an individual or individuals authority over decisions relating to your health and well being. Like a POA, it only applies while you are alive and may apply if you are not incapacitated. The authority under a representation agreement is comprehensive and can include health decisions, well-being decisions and authority to access records. It also includes an end-of-life provision, which prevents medical professionals from administering heroic measures in the event there is limited or no prospect of recovery. Representation agreements also allow doctors to remove you from life-support if you have a limited, or no, prospect of recovery. Otherwise, they must keep you alive in a vegetative state.
Preparing the power of attorney and representation agreements in a timely manner is important. If you put off preparing these documents and lose capacity, they can no longer be prepared as you must have capacity to sign these documents.
I have dealt with many cases where individuals did not prepare these documents prior to losing capacity, and then tragedy struck, such as car accident, stroke or dementia. In those cases, the family was left scrambling to figure out how to deal with their loved one’s finances, health decisions and bills. The solution at that point is a very time-consuming and costly petition to the court known as “committeeship.”
The information provided in this article does not, and is not intended to, constitute legal advice. All information and content is for general information purposes only.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.