- July 12, 2019
- Posted by: Danny Michael
- Category: Finance & accounting
Should I have a Financial and/or Medical Power of Attorney?
If you trust someone to make important decisions on your behalf–manage your finances or medical care–you can use a Power of Attorney (POA) to empower them to act without requiring your direct input and approval.
This legal tool can be used to designate someone as your personal representative in a single transaction, or it can be used to plan ahead in the event that you become unable to make important decisions for yourself.
Remember, a Power of Attorney is a powerful legal document. It goes into effect the moment it is signed. You should never sign a POA if you are feeling pressured or uneasy. The individual designated in your POA will have the ability to enter you into legally binding agreements and transactions. Carefully consider your level of trust in the individual before granting a POA.
What Is A Power of Attorney
In its simplest form, a Power of Attorney is a legal document used to transfer decision-making authority to another individual.
There are two general categories:
An ordinary Power of Attorney remains in effect as long as you are of sound mind and capable of making decisions for yourself. It loses its effect if you are no longer able to make decisions, or if you choose to add provisions that limit its duration and scope.
A durable Power of Attorney remains in effect, even if you lose the capacity to make your own decisions. These are most often used for advanced directives that define how decisions will be made in the event of a debilitating medical event, for example, in the case of life-sustaining treatment and/or end-of-life care.
As long as you are of sound mind, you retain the option to alter or revoke a Power of Attorney.
Durable Power of Attorney for Finances
If something happened and you were no longer able to take care of your finances, who would you want to step in and help? Who can you trust with your financial security during a difficult chapter in your life?
You need to think about how you want your family’s finances to be managed in this scenario.
A durable Power of Attorney (POA) for finances will designate who is responsible for managing your financial affairs. The person listed in your POA for finances is called an “agent” or “attorney-in-fact”. This can be anyone you trust, but it’s a good idea to select someone with the financial literacy required to maintain your financial security.
You can define the scope of their duties. You are also able to empower multiple people to serve as your agents. Some individuals choose to require that their agents agree before making an important financial decision on their behalf. Or you can split up the different aspects of managing your finances between them.
You should consult both a qualified wealth advisor and an attorney to understand the specific needs of your estate, and how you can best plan for the future. You do not want to leave these difficult decisions unmade for your family to try and figure out during a stressful time.
Medical Power of Attorney
A medical POA gives someone the authority to make medical decisions on your behalf. A durable medical POA is an advance directive that designates the individual(s) responsible for making medical decisions if you are unable to make them for yourself.
Sadly, almost every family experiences a time when they are forced to make difficult medical decisions for a loved one. Your durable medical Power of Attorney will help them understand your wishes and give them the confidence they need to pull together and make important decisions during a stressful time.
What can your healthcare agent do with a medical POA?
Pay careful attention when putting together your POA. Ask your preparer questions about how different situations should be handled, and if you need to add specific language to your POA to ensure your interests are protected.
A medical Power of Attorney can provide someone you trust with broad powers or narrowly defined authority over specific situations. It’s completely up to you and the attorney that drafts your POA.
Your healthcare POA will likely give your healthcare agent the authority to:
- Decide which medical procedures are completed, where they are performed and how your medical team handles ongoing care. You will be financially responsible for all medical costs incurred.
- Decide where you will live. Your healthcare agent can place you at home with in-home care, in a nursing home or hospice facility.
- Decide which physicians, therapists, and specialists provide your medical care.
- Control your diet.
- Assign important care, like bathing, to a specific individual or agency.
Financial Power of Attorney
If you want someone else to have the power to make financial decisions on your behalf, you can grant them a financial Power of Attorney.
This might be used to empower someone else to negotiate and execute a specific transaction in your absence. This is common for real estate transactions where either the buyer or the seller are not physically present to execute the deal.
When opening a new investment account, your wealth manager may need you to sign a limited financial Power of Attorney in order to execute trades on your behalf. If your financial advisor lacks the legal authority to execute trades, they will need to consult you on every transaction and ascertain your express legal consent. A financial POA can help streamline the management of your investments.
What can your financial agent do with a financial POA?
It is very important to thoughtfully craft your financial Power of Attorney. You can choose the scope of the POA and include specific limitations to help preserve your financial security. Take time to weigh your options and choose the best agent(s) to take care of you.
Your financial agent will likely have the power to:
- Withdraw funds from your financial accounts in order to pay for your medical care and living expenses.
- Have your tax return(s) prepared and filed with the IRS.
- Manage your investment accounts, including changing your investment portfolio.
- Satisfy your financial obligations and debts.
- Control management and maintenance of your property.
- Submit applications for benefits on your behalf (Medicaid, VA, etc.).
Your financial agent will most likely lack the legal authority to:
- Amend your Will.
- Violate their fiduciary duty to act in your best interest.
- Make decisions on your behalf after your death.
- Designate someone else to act as your agent. They are allowed to formally resign or decline the role of an agent, but they have little to no control over who replaces them.
Choosing an Agent
It’s incredibly important to get this decision right. The agent that you designate in your Power of Attorney will have extensive control over your life. They may be responsible for ensuring your financial security–making investment decisions and managing your finances. They may also be responsible for your healthcare–deciding if you should be placed on life support and choosing your medical facility.
These are HUGE decisions. An irresponsible or poorly chosen agent can cause serious harm to you and your family.
What to look for:
- Someone that deals with people fairly and can be trusted with your medical care and/or financial future.
- Someone that understands the responsibility they are taking on and approaches their work with thoughtfulness and care.
- Someone who shares your values and is fully aware of your wishes.
- Someone that has demonstrated loyalty to you.
The best step you can take to protect yourself and your family is to surround yourself with highly qualified advisors that are willing to explain your options and understand your wishes. Look for an experienced wealth advisor you can trust and an attorney that specializes in elder law.
Don’t leave these important steps to chance. Act now to ensure your family has the resources they need to take care of you if suffer an injury or an illness that prevents you from taking care of yourself.