The most overlooked part of your estate plan
When it comes to estate planning, many individuals strongly prioritize the importance of having a Last Will and Testament. They meet with an attorney, plan out and execute their Will, and then proceed to file the document away for a later time. However, by focusing only on the importance of their Will and neglecting other essential estate planning documents, namely their Powers of Attorney (POAs), these individuals can often face huge problems down the road.
Before a person passes away, the reality is that almost every individual will have to deal with one or more periods of disability. Because of this, it is crucial to plan in advance to ensure that you have plenty of choices when weighing long term care options and how to pay for them. This is where a Durable Financial and Medical Power of Attorney can make all the difference.
Unfortunately, these extremely important documents are often overlooked, when instead, they should be at the top of Americans’ estate and financial planning to do list. So what makes the POAs so significant, and how should people incorporate these documents into their long-term plans? Let’s dive in…
The Ins and Outs of POA Documents
First and foremost, the POA is a legal document that names an Agent (chosen by the Principal) to act on the Principal’s behalf if he/she is unwilling or unable to do so, or if he/she otherwise needs assistance in making important financial and healthcare decisions. Without this document, no person, not even a spouse, has the inherent right to make those decisions on your behalf. Take, for example, the challenges that would come into play if you had a parent with dementia and they could no longer manage their day-to-day finances, such as tracking their bank account or paying bills. Or consider if one spouse got sick and went into a nursing home and he or she happened to have the majority of their assets in a large IRA. If the healthy spouse needed funds, and there isn’t a POA, they would be unable to access the funds for support or utilize important planning tools to ensure that he or she was protected.
A well drafted POA can be utilized to protect the interests and assets of you and your loved one(s). It can make it easier to care for a loved one at a very difficult time and also give a spouse or family member the ability to properly plan for a loved one’s long term care, while at the same time protecting their assets. Another important detail to remember about the POA is that it controls matters during the time in which you are living, while a Last Will and Testament controls how your assets are distributed after you have passed away.
There are several items that you should take time to consider prior to meeting with an attorney to create your POAs.
- Deciding on “who.” It’s crucial that families have an open and in-depth conversation with each other when it comes to deciding on who, legally, will be the appointed Agent for an individual’s POA. The person appointed needs to be capable, trusting, and preferably someone who lives close by. Consider the strengths and weaknesses of your children and what they can handle. One may be better with financial responsibilities and one may be better equipped to care for an elderly parent and make medical decisions. Remember that this isn’t a time to worry about feelings. You need to make sure that the person you are appointing can handle your affairs properly.
- When to create your POAs. While we often think of POAs in regard to estate planning, it is also important to keep in mind that once an individual turns 18, his or her parents no longer have a legal right to make decisions on their child’s behalf. Consequently, after the age of 18, everyone should have their POAs.
- Not all POAs are created equally. There are many people who turn to the internet or an attorney friend (who doesn’t specialize in Elder Law) to prepare their POAs. This is a big mistake! Especially in the area of long term care planning, where there are many specific powers that must be contained in a POA document in order to allow for proper Asset Protection Planning.
Properly drafted POAs not only help to fulfill an individual’s wishes, but will also assist and protect his or her loved ones when it comes to making healthcare and financial decisions, Don’t let your POAs fall by the wayside. Understand the significance of this most important estate planning tool in providing guidance to your family and creating a strong plan to protect you and your loved ones.