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Estate planning 101: Powers-of-attorney (Part 1)
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George Will said, “The future has a way of arriving unannounced.” He couldn't be more correct. Unfortunately, there is no “disaster fairy” that says, "In three days you're going to have an accident and be laid up in bed unconscious for six weeks." It's when events like this take place that families find out about these documents after the fact. There have been a multitude of articles written about celebrities who had these documents--Michael Jackson, Ray Charles, and Farrah Fawcett; and multitudes about those who didn’t: Jerry Garcia, Marilyn Monroe, and Heath Ledger—to name a few. Some had problems, others didn’t.
The Power-of-Attorney document gives the right to some of your own choosing to act as your attorney, or make decisions on your behalf. A General Power-of-Attorney give the appointed individual total access to your assets from the moment the document is executed, or signed. A Specific or Limited Power-of-Attorney gives them this right under specific circumstances, for example when you are incapacitated or unable to care for yourself, or you’re out of the country for an extended period of time, say in the military. Without these documents, no one can handle your finances or direct your healthcare on your behalf should you be unable to do so.
Regarding your finances, your loved ones will have to go to court to become appointed to handle your finances during this time, or in the case of your health care, the state will take control of it unless you, again, go to court. And the court, to add insult to injury, may not appoint the party the family would choose. The Court could very well choose a party outside of the family, also known as an administrator or conservator. As you probably already know, court proceedings can be quite expensive, in addition to the cost of a court-appointed conservator. The cost of having these documents drafted is a drop in the bucket comparatively speaking.
There are several types of Powers-of-Attorney, including general or specific. There are the Powers-of-Attorney for your finances and healthcare. These documents are an essential part of your estate planning no matter what your net worth is. They are not meant solely for older people -- if you are 18 years or older, you are considered a legal adult and are expected to have these documents executed to protect you in the case of your own incapacity.
Let’s focus on the financial aspect. What is a financial durable power of attorney? If you are incapacitated, this document gives another person full legal authority to sign your name on your behalf and manage your finances for all assets not owned by your trust. If you have a revocable living trust, your successor trustee or surviving spouse will be granted the power of attorney for those assets inside the trust. If you don't have a trust, this document will allow access to ALL your assets. Consequently, whoever you choose to act in this capacity needs to be someone you can trust to do what you would do if you weren't incapacitated.
I have heard horror stories of spouses unable to refinance a home to pay for the long-term care of the other spouse, or sell a home because it was too much to handle, or could not redirect pension and Social Security payments to a new bank account because they did not have a power of attorney.
On the other hand, this document needs to be drafted with much thought and consideration before appointing someone to act on your behalf. I’ve heard more horror stories of parents who have granted power of attorney to their children only to wake up after an extended illness and discover that the children sold their home, raided the investment accounts, or lost assets to their children’s creditors. So be cautious and careful in choosing this person. They will be able to do anything that you could do, including opening and closing accounts on your behalf, paying your bills, buying and selling cars, homes, and other assets, and handling anything that essentially has a $-sign in front of it.
Mistakenly, spouses assume that they can sign for one another in the event of incapacity. However this is not true. If you were to endorse the back of a paycheck on behalf of your spouse you are essentially committing fraud. You need this document.
Here comes my disclosure. I am not an attorney nor do I practice dispensing legal advice. It is up to you to get these documents drafted and reviewed by an attorney for their accuracy and effectiveness. If you choose to do your own documents I highly recommend that they be reviewed by an attorney to make sure they grant the powers you want your trusted attorney-in-fact to have, or the reverse—to limit those powers. If you don’t have them reviewed, you will run the risk of not finding out their ineffectiveness until the tragedy strikes and it is too late. At that point, your family is helpless to help you.
Learn about the Power-of-Attorney for Healthcare here in Part 2 of this article: http://budurl.com/2mqq
© Start Smart Advisor™, Inc.
For more info: check out these articles—elder abuse by granting too much power http://www.latimes.com/news/nationworld/nation/ny-bzsaul2012860694jun18,0,3809252.column, Ray Charles estate nightmares http://www.latimes.com/news/local/la-fi-raycharles20apr20,3,7332298,full.story
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