When most people think about Estate Planning, they think about planning for how their assets (the estate) will be distributed when they die and how to facilitate smooth administration. But Estate Planning encompasses much more – it is also planning for and deciding who will manage your assets during your lifetime, if and when you are incapacitated. It is equally important for you to prepare for a time when you are still living but may be unable to make decisions for yourself — for your health care and financial matters. Whether you are just starting out in your career or preparing for your retirement years, it’s never too early to consider how you want your health and financial affairs to be managed if something happens to you and you are not able to exercise control over your affairs for one reason or another. This is known as incapacity planning. For your health care decisions, incapacity planning is addressed with an Advance Medical Directive. Planning for your financial decisions is addressed with a Power of Attorney document.
What is a power of attorney?
Powers of Attorney are extremely significant tools to help you prepare for your future, and are perhaps the most important of all planning documents. A Power of Attorney is a legal document you sign to grant someone you trust with authority to make decisions on your behalf. The “principal” is the person who creates the power of attorney and the “agent” (aka the attorney-in-fact) is the person who is receiving power by way of the document. This agent, or attorney-in-fact, has the legal authority and right to make certain decisions that you would make if you were able. You, as the principal, have not given up your own power to perform these same functions, but rather have granted legal authority to the agent to perform various tasks on your behalf if you are not able to do so.
Why do I need one?
A Power of Attorney arrangement is important, even essential, to managing your financial affairs in the event you become unable to manage things on your own. Planning for the future with a power of attorney can minimize complications to achieving your financial goals. This important document:
- Provides the ability to choose who will make decisions for you (rather than having a court decide).
If you sign a Power of Attorney document and later become incapacitated and unable to make decisions, the agent named can step into your shoes and make important financial decisions on your behalf. Without a Power of Attorney in place, a court-appointed guardianship or conservatorship may need to be established, and that can be a time consuming and very expensive process.
Someone who does not have a comprehensive Power of Attorney at the time they become incapacitated may have no lessor restrictive alternative and a third party would have to petition the court to appoint a guardian or conservator. The court would then choose who is appointed to manage the financial and/or health affairs of the incapacitated person, and the court would continue to monitor the situation as long as the incapacitated person is alive. While this is not only a costly process, the incapacitated person would likely have little or no input in deciding who will be appointed to serve.
- Provides family members the opportunity to discuss wishes and desires.
Much thought and consideration goes into creating a comprehensive Power of Attorney. One of the most important decisions is who will serve as the agent. When you or a loved one make the decision to sign a Power of Attorney, that provides a good opportunity to discuss wishes and expectations with the family and, in particular, the person named as agent in the Power of Attorney.
- Minimizes questions about principal’s intent.
There are often times court battles over a person’s intent once that person has become incapacitated. A well-drafted Power of Attorney, along with a health care directive, can eliminate the need for family members to debate or disagree over a loved one’s wishes. Once written down, this document is excellent evidence of your intent and is difficult to dispute.
- Allows agents to talk to other providers.
An agent under a Power of Attorney is often in the position of trying to reconcile bank charges, make arrangements for health care needs, engage professionals for services to be provided to or on behalf of the principal, and much more. Without a comprehensive Power of Attorney giving authority to the agent, many companies will refuse to disclose any information or provide services to the incapacitated person. This can result in a great deal of frustration, as well as lost time and money.
- Allows agents to plan for the principal’s eligibility for public benefits.
Having a Power of Attorney is extremely important in helping a loved one become eligible for public benefits, such as Medicaid and/or Veterans Administration benefits, as well as in assisting them with maintaining their eligibility and in making benefit-related decisions. The Power of Attorney gives the agent the authority to access the supporting documentation required during the application process and to manage and potentially transfer the loved one’s assets and income to gain eligibility. Once eligible for public benefits, the Power of Attorney provides the agent with the power to write checks on behalf of the benefit recipient to cover co-payments or share of the costs.
- Provides peace of mind for everyone involved.
Taking the time to create and sign a Power of Attorney lessens the burden on family members who would otherwise have to go to court to get authority for performing basic tasks, like writing a check or arranging for home health services. Knowing this has been taken care of in advance is of great comfort to families.
How do I get a Power of Attorney in place?
The laws governing Powers of Attorney are specific to each state, so it is important that you understand the applicable laws both where you live, and where you have assets. Most states require that your Power of Attorney be in writing, witnessed and notarized. You must sign when you are still mentally competent for your Power of Attorney to be valid. This is a good reason to plan early for your later years, so that your affairs are in order.
Nobody can predict exactly which powers will be needed in the future. Although each client’s goals are different, generally the primary goal is to have a Power of Attorney in place that empowers your agent to do whatever needs to be done in the future. At Elville and Associates, we take a two-tiered approach to meeting these planning goals. The first tier is use of the Maryland Statutory Power of Attorney that was created under the Maryland Power of Attorney Act of 2010. This is a straight-forward document that, while not customizable, must be accepted by law at the financial institutions in the State. It is a simple document, enforceable by law, that provides the average person with the ability to grant his or her agent with basic powers.
Many people, however, choose to supplement the statutory Power of Attorney with a durable Power of Attorney which can be customized, and which allows much broader and more extensive powers to be granted to your agent. Examples of these enhanced powers are powers granted to your agent:
- To establish, amend, revoke or terminate revocable and irrevocable trusts during the principal’s lifetime
- To fund or make withdrawals from trusts
- To create or change beneficiary designations
- To manage government benefits
- To care for and deal with pets
- To make a gift of money or property
- To perform a Medicaid spend-down of assets
- To be compensated
Using the combination of the statutory and the durable Power of Attorney documents is a powerful tool because each has a tactical advantage. The statutory document is enforceable through the state statute which requires banks and other financial institutions to accept it. The durable power of attorney document, on the other hand, is much more comprehensive and places the principal in a much stronger position should need arise when the principal becomes incapacitated.
No one likes to think about a time when he or she is unable to make their own decisions, but it is critical to plan for it. Accidents happen and illnesses can come on unexpectedly. If and when you become incapacitated, your family and loved ones will not automatically have the access and authority to make your decisions and manage your affairs. Without that access and authority in place, your wishes may not be followed and your assets may not be protected.
In Maryland, unlike with health care decision making, there is no such thing as surrogate decision making in financial matters. This is why the Power of Attorney is essential. Powers of Attorney can and do provide you with peace of mind – you choose who will act for you when you are unable to act for yourself, and you define that person’s scope, authority and limits. Even if you are unable to handle the decision making yourself, having a Power of Attorney document in place assures you that everything you have worked for during your life will continue to be managed according to your wishes.
For more information or to schedule a time to discuss your incapacity and estate planning needs, including a “powerful power of attorney,” please contact me at firstname.lastname@example.org, or by phone at 443-393-7696 x111. All initial estate planning consultations are free and typically run about 1-1/2 hours. This is a time for you to get to know Elville and Associates and me, ask questions, and have me learn about your overall situation, your goals and you so I can create a solution and path forward for your planning. I look forward to meeting you!