What do you think of when you hear “Power of Attorney”? If you are like most people, you probably think a POA is designed to assist a person with his/her day-to-day responsibilities including management of financial assets in the event he or she becomes incapacitated by illness or an unfortunate accident. While an agent acting under a Power of Attorney can take specific actions on your behalf, such as writing checks, paying your bills, or managing certain aspects of your business, the POA cannot manage your financial matters if you become incapacitated—unless the Power of Attorney document is “durable.”
Most people have heard of a Power of Attorney but not everyone has heard of a “Durable Power of Attorney.” A power of attorney (POA) legally assigns authority to a representative to act on your behalf in matters that you specify within the document. There are different types of Powers of Attorney that provide the representatives with varying levels of authority. One common scenario is to give an employee a power of attorney over a business bank account in order to communicate with the bank, write checks on behalf of the business, etc. A durable power of attorney extends the life of the POA in the event of your incapacity.
You can also design a durable power of attorney so that it only becomes effective upon your incapacity. This is a common approach when working with an estate planning attorney. Under this scenario, as long as you have capacity, you will be the person managing your legal and financial affairs. In the event that you are temporarily or permanently incapacitated, the Durable Power of Attorney document will name an agent to act on your behalf. This person is referred to as your “attorney-in-fact”.
Nobody wants to think about what would happen to his/her financial assets and other day-to-day responsibilities in the event he/she becomes incapacitated by illness or an unfortunate accident. Unfortunately, without a Durable Power of Attorney, you relinquish control of how your affairs will be managed should you become incapacitated. Your family will be forced to establish a Conservatorship with the court to handle any financial issues. For people without a close relationship to their family, this can be especially problematic. The person may find themselves in a divisive situation, as estranged family members gain access to their assets.
It is also important to note that you should have a “Medical Power of Attorney” in addition to your Durable Power of Attorney. The Medical Power of Attorney appoints an agent to make health care decisions on your behalf. In California, the Medical Power of Attorney is called an “Advanced Health Care Directive.” This is a document that designates a trusted person to make decisions regarding medical matters when you are unable to do so for yourself.
As with anything else, planning ahead is an essential and easy way to avoid unnecessary stress, hardship, and financial burden.