Most people understand they need a will to protect their loved ones and distribute their assets after death. However, many overlook another critical document that protects you while you’re still alive – the power of attorney. As experts in estate planning, we often tell our clients that a power of attorney may actually be the most important estate planning document you’ll ever sign.
Why Powers of Attorney Matter
While we often talk about “estate planning,” what we’re really providing is “life planning.” A power of attorney addresses a crucial question: Who will manage your affairs if you become unable to do so yourself?
Chris Markou, Director of Estate Planning at BMO Private Wealth, believes that “a well-thought-out POA – a legal document that identifies a person who can make health or financial decisions (or both) on your behalf when you can no longer make them yourself – may be even more important than a Will.”
Why? Because when you don’t have a Will, there is at least a system in place to distribute your wealth, even if it doesn’t reflect your wishes. However, without a POA, there is no clear pathway to take care of your assets if you become incapacitated.
Think about the many situations that could leave you unable to handle your own affairs: a stroke, Alzheimer’s disease, or an accident. Someone still needs to pay your bills, manage your insurance, and handle your financial matters.
What Happens Without a Power of Attorney?
Without a POA in place, if you lose capacity, the court must appoint a guardian for your property and personal care. This process is time-consuming, costly, and complex, potentially stretching for months – time you and your family may not have when swift decisions are needed to protect your assets and meet your needs.
If you do not have a power of attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint guardians or conservators to act for you. This public court proceeding, sometimes known as intervention, means you won’t have the ability to choose who will act for you.
Types of Powers of Attorney
Different types of powers of attorney serve different purposes in your estate plan:
A durable power of attorney is applicable from the date it’s executed. If you sign it today, your appointed agent can manage your affairs tomorrow without further authorization. It remains in effect whether you are incapacitated or not.
A springing power of attorney is executed but doesn’t go into effect until a specific event occurs, usually your incapacity. Your agent cannot access your financial affairs until you’re unable to do so yourself. Generally, a physician’s letter is necessary to activate this type of power of attorney.
Financial powers of attorney authorize your agent to handle financial matters such as paying bills, managing investments, dealing with real estate, operating your business, and managing insurance transactions.
Medical powers of attorney (also called healthcare directives or living wills) allow your designated agent to make healthcare decisions on your behalf following your stated wishes regarding medical care and end-of-life decisions.
Choosing the Right Agent
One common concern is whether to use an immediate or springing power of attorney. Many clients initially prefer the springing option, as it only gives the agent authority if they become incapacitated.
However, this can create practical problems. If your agent needs to act on your behalf with a springing POA, they’ll need to prove your incapacity to third parties like banks, which can be difficult and create barriers to helping you when you need it most.
The most important consideration isn’t whether the power is immediate or springing, but rather the trust and confidence you have in your selected agent. As we often tell clients, “If you’re concerned that the person you’re appointing might misuse that power, you’re appointing the wrong person.”
There are no special qualifications necessary for someone to act as your attorney-in-fact except that the person must not be a minor or otherwise incapacitated. The best choice is someone you trust. Integrity, not financial acumen, is often the most important trait.
Powers of Attorney and Your Estate Plan
It is almost always recommended that you create a will and power of attorney together. The power of attorney provides protection during your lifetime, while the will provides protection after your death. Together they provide an ongoing umbrella of protection for your assets.
A will designates the guardians who will be responsible for children and directs how your assets will be disposed of after death, compared to powers of attorney which provide instruction on how to handle an individual’s assets and affairs while they are alive.
No, a power of attorney does not affect a will. Upon your death, the power of attorney terminates immediately. The executor then distributes your estate according to the provisions in your last will and testament. Both are essential estate planning tools to use either during incapacity or death.
Beyond the Basic Statutory Form
Many people use basic statutory power of attorney forms found online or through legal aid services. While these forms are legal, they may not be comprehensive enough for your needs.
Today’s complex digital world requires your agent to have authority for tasks the legislators who created these forms never contemplated – retrieving email passwords, managing online banking, and the myriad of other digital activities that are now part of our lives.
“When people say, ‘I need one of those simple little powers of attorney,’ there’s no such thing. Anyone that gives you one doesn’t know what they’re talking about.”
Take Action Today
Don’t wait until it’s too late. A comprehensive power of attorney is just as important as your will – perhaps even more so. While your will only takes effect after you’re gone, a power of attorney protects you and your assets during your lifetime when you need help the most.
Our experienced estate planning attorneys can help you create a power of attorney tailored to your specific needs, ensuring your wishes are honored and your interests protected no matter what life brings. We’ll help you understand the various options available and guide you in choosing the right agents to act on your behalf.
Schedule a consultation with our estate planning team today to ensure your life planning documents provide complete protection for you and your loved ones. Remember, it’s not just about planning for death – it’s about planning for life.
