A durable power of attorney is an important part of every estate plan. Most people realize the importance of the last will and testament. However, they remain unaware of the importance of a durable power of attorney. This document authorizes another person to act on your behalf while you are alive and expires upon death, as explained in a recent article titled “Power of attorney likely to be first vital estate document” from The News-Enterprise.
Let's put it in a simple, real world context. Have you ever wanted to make a change to your joint bank account - maybe even something as simple as updating your address? And the bank informs you that both holders of the account need to be present to make even a simple change. Now imagine that your spouse is incapacitated with an injury or illness. You're stuck without your spouse's ability to be with you to make changes to any of your joint accounts or policies. A power of attorney solves that problem.
The power of attorney is used to give authorization regarding legal and financial matters. It can be tailored to be as broad or as narrow as one wishes. A healthcare proxy, also known as a healthcare power of attorney, is used to give authorization for medical decisions.
The general POA is used when a person is unable to act for themselves due to illness or injury. It is also needed when a person is unable to act on their own behalf because of mental incapacity. The POA is also used for when someone prefers to have another person manage their financial affairs.
Spouses use POAs to handle day-to-day financial tasks, from dealing with insurance companies to managing bank accounts, loans, or other financial matters. If one spouse cannot attend a real estate closing, for instance, the other will need a POA so they may represent their spouse.
Some people think just adding another person to an account will work the same way as a POA. However, this is not true. A co-owner might be able to pay bills. However, their ability to do anything else will be limited. They won’t be able to amend the account, unless both parties are present, for instance.
POAs are state-specific documents, so any POA, whether for healthcare or finances, should be created by an estate planning attorney in the state where you live and any state where you own property.
Some powers, including the ability to make gifts of the principal’s property or to change beneficiaries for retirement accounts or life insurance policies, may sound as if they are far beyond what’s needed when these documents are first drafted. However, unexpected things happen at all stages of life, and situations arise where these powers are needed. Seemingly simple tasks become far more complicated, if the POA doesn’t permit these types of additional powers.
If there is concern about broad powers, the document can include limited language. For instance, a POA can include a limit on gifting the principal’s property pursuant to any previously documented wishes. This will allow gifting to be completed, but only to the terms already indicated. However, be careful about broad limiting language, like limiting gifts to annual gift exclusions. Prohibiting an agent from acting in ways to protect the principal’s property and best interest could be counterproductive.
Drafted by an experienced estate planning attorney to suit the specific needs of the individual, a power of attorney can make it possible for a trusted individual to conduct your wishes and protect your best interests. Make sure that you have one and update it whenever you update your overall estate plan.
If you are in the Madison, Wisconsin area give us a call to discuss your estate plan and how we can help give you peace of mind you've planned for your family.
Reference: The News Enterprise (June 25, 2022) “Power of attorney likely to be first vital estate document”