Preparation is always good. We have no way of knowing what the future might hold, and with a little bit of foresight, we can save ourselves and our families a lot of grief and trouble. That is the basic ethos behind estate planning tools like durable power of attorney documents (POAs), which enable someone (an “agent”) to act on your behalf.
A POA is particularly valuable for the management of finances and healthcare decisions – two major areas of life where prior authorization is needed for many important decisions. But what kind of authority can a power of attorney grant? That depends entirely on how you word your document, what intentions you have, and how your accounts are set up.
A power of attorney document is a versatile legal document that gives someone the authority to act on your behalf.
You can specific or limit that power in any way you please, to the point that power of attorney documents have been drafted up specifically to authorize a close friend to rent an apartment in your name, while other documents give a spouse sweeping authority to make complex financial and medical decisions should you be in a coma.
With the help of a legal professional who is well-versed in local law, you can draft a power of attorney document that only activates at a specific time, for a specific purpose. Language and precision are important, as giving someone else the right to act on your behalf is no small privilege. Other important considerations are who to pick should your first choice be unavailable.
Of if you decide to name multiple people as your representatives, how should they handle disputes if they cannot unanimously agree on how to manage your finances or healthcare. It is also important to note that a power of attorney does not have sweeping privileges, and that, without specifying, there tend to be local limits on what rights a power of attorney document can grant.
If you have a retirement account with a designated beneficiary, for example, a typical power of attorney document may not necessarily grant your agent the right to change that beneficiary designation without you specifying that right in the POA document. Furthermore, all agents in a power of attorney are bound by a fiduciary duty to the principal (you).
This means everything they do must be in your best interest, or at least be interpreted as such. Breaking that rule can be grounds for their dismissal if someone else petitions for it while you are incapacitated.
Power of attorney documents are versatile, but certain variations and intended purposes are commonly referred to via named archetypes. A durable power of attorney, for example, grants your agent the right to act on your behalf if you are incapacitated.
Without specifying this, a power of attorney document may not necessarily grant your agent the right to do anything in your name while you are in a coma or otherwise incapacitated. This is because many POAs are drafted for a specific purpose – and that purpose may become irrelevant in the face of a sudden emergency.
A power of attorney document can be used to manage certain estate planning documents while you are incapacitated, including beneficiary designations on things like life insurance policies, retirement accounts, vehicles, and real property. However, if you want to grant your agent that right, be sure to specify it in the POA document.
It is also important to note that an agent has no power once you die. Power of attorney documents exist only to allow someone to act on a principal’s behalf while the principal is alive, so your agent would not be able to manage your retirement account and/or designate beneficiaries after your death.
Power of attorney documents are usually drafted for two general purposes: managing finances and managing healthcare. While it might sound easier to just write one for both purposes, particularly if you’re planning on only picking one agent to make decisions on your behalf should you be incapacitated, this might not be the best idea for your privacy.
Power of attorney documents are usually the kind of legal document an agent must present and keep a copy of whenever they want to make a decision on your behalf, especially if your life is on the line or if they wish to access and manage one of your accounts at a bank. There’s no need for a hospital to see what accounts and financial rights you’ve given your agent access to, and there’s no need for a bank to see what kind of healthcare rights you’ve given to your friend or loved one.
You should keep the two separate and note that it is possible to name a single agent in multiple power of attorney documents. One final consideration is to be sure to keep your power of attorney documents updated. Certain banks may have policies about denying an agent access to a client’s account if their document has not been updated in a considerable amount of time, and they cannot contact the principal for verification.
By regularly updating your power of attorney documents, you are also making sure that you are not accidentally giving anyone rights as an agent that you would not want them to have. Circumstances change, and what might have been a good idea a year ago might not be a good idea today. It is advised to revise all your estate documents following any life-altering event, or once every few years.
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