Now that the holidays have come and gone, family members are often beginning conversations about their aging loved ones and how to protect assets with estate planning documents.
For the young and old alike, however, the new year is a good time to be proactive about estate planning. While a will or a trust may be one of the first instruments to come to mind, a power of attorney is actually the most important document all adults need to protect their assets and preserve their estates.
A power of attorney is a legal instrument in which one person – a principal – appoints another person – the agent – to act on the principal’s behalf when the principal is not capable of making decisions. This document can be broad enough to permit the agent to make all kinds of financial and personal decisions, or can be limited to only certain circumstances.
The principal can also choose when the agent’s authority becomes effective. When a power of attorney is properly drafted, it can even authorize the agent to transfer assets for long-term care, veteran’s benefits and Medicaid planning. A word of caution here: we often see powers of attorney that do not adequately provide for the transfer of assets required for successful long-term care planning.
Many people tend to believe they will execute a power of attorney at a later point. Unfortunately, this is not always an option, because people cannot know when they might be rendered incompetent. An older person with dementia can slide quickly into incompetency before the power of attorney can be executed. A younger person could be in a disastrous accident that renders them comatose. Without a power of attorney in place, the only alternative is for a family member or friend to seek a guardianship.
A power of attorney is fairly inexpensive when compared to the more costly guardianship hearing in a court of law, where medical evidence is required. In a guardianship hearing, a person may be deemed incompetent by the court. The court then appoints a guardian to make personal and/or financial decisions for the incompetent person. In a guardianship proceeding, an incompetent person lacks control over who may be appointed as a legal guardian.
In close, a power of attorney is a low-cost, private way to choose which trusted individuals will have the legal authority to act on a principal’s behalf. Without a power of attorney – or a properly drafted power of attorney – a person who becomes incompetent finds his or her ability to preserve assets significantly hampered, leaving guardianship hearings as the only other option.
With the arrival of the new year, make a resolution to protect your assets by executing a power of attorney.