Just as important as wills and trusts are your durable power of attorney, medical power of attorney, and living will. These documents should be updated as your life evolves and family circumstances change. Remember these documents are very specific to each state, so it’s important to consult with an attorney well versed in the laws of your state.
In order to fully appreciate the value and necessity of these important documents, it’s helpful to look at what can happen if you don’t have them. Let’s take the hypothetical scenario of Jack Smith and his family. Ever since his mother died, Jack had been after his eighty-five year old father, Bob, to meet with an attorney to review his estate plan. Bob was reluctant to tell any of his three children how much money he had and where it was invested. He was an independent, self-made man and had always managed his own finances and wanted to continue to do so. And besides, upon his death, the children would simply split the estate into thirds, just as his twenty-year old will dictated.
One week before his eighty-sixth birthday, Bob had a severe stroke that landed him in a nursing home. Since Jack was the oldest child and lived the closest to Bob’s house, he took on the responsibility of overseeing his father’s assets. After three months, Bob’s mental capacity was 50% and no improvement was expected.
The nursing home costs were mounting every day. Jack was under pressure to pay them, as well as his father’s other expenses, but he could not access his father’s accounts. Out of desperation, he went to court to seek legal guardianship over his father. Jack’s brother and sister objected, saying that he was only looking to gain control over their father’s money for his own personal gain. During the lengthy and public court battle, Jack dropped the petition out of disgust. The court declared Bob incompetent and appointed a guardian to handle his affairs.
A year later, Bob died. Many of his hard-earned dollars had gone to attorneys and his guardian, and his children were irrevocably divided over the guardianship issue. This outcome certainly was not what Bob had wanted for his family.
What can you do to avoid putting yourself or those you love in the position as described above?
Start with a durable power of attorney
A durable power of attorney is a method to arrange for someone, called your “attorney-in-fact,” to take care of your finances. It can be effective immediately or can be written with a springing power, meaning that it will not be in force until a certain action takes place, such as incapacitation due to an injury or illness. You can specify the action, such as a doctor, or even two, declaring that you are unable to make financial decisions.
You can stipulate how much control your attorney-in-fact will have over your finances. These powers can include, but are not limited to:
- Paying household expenses
- Handling retirement accounts
- Collecting government benefits
- Filing income tax returns
- Managing a business
- Buying and selling assets
- Making gifts to family members
The person you select to be your attorney-in-fact should be someone you trust and who has shown the ability to manage their own finances competently. This could be a family member, close friend, or your attorney or accountant. In addition, it is advisable to select an alternate, so that the second person can perform the powers in the event that the first person predeceases you or is not able to act due to other constraints.
A medical power of attorney and living will
While you’re at your attorney’s office, you should also consider obtaining a medical power of attorney. In some states, this is known as a healthcare proxy, a durable power of attorney for healthcare, or a medical directive. Whatever name your state calls it, the idea is to give someone else the legal authority to make medical decisions for you when you can no longer make them for yourself.
A medical power of attorney is often combined with a living will, which provides specific instructions to your family and physicians regarding continuation of your life by artificial means or “heroic measures.” This document can relieve your loved ones of the responsibility of making a difficult choice.
A durable power of attorney, medical power of attorney, and a living will let you keep control of your own destiny, and equally important, make things a little easier on those close to you. But remember that these documents are very specific to each state. Therefore, it is important that you consult an attorney well versed in the laws of your state to make sure that the drafting of these documents meets all applicable state laws.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.