As much as we like to think that we’re in control of things, life can be unpredictable. Even the healthiest person can suddenly be diagnosed with a terminal illness. And even the most financially savvy individual can lose everything they own overnight.
It’s a grim thought, but while we can’t predict sudden illnesses or financial hardships, there are some steps we can take to protect ourselves against sudden incapacity. One of these measures includes establishing a power of attorney, a legal form that allows you to nominate someone to make crucial decisions on your behalf.
How does it work? When do you need one? And what are the various power of attorney form types? Read on for answers to these crucial questions.
What Is a Power of Attorney?
A power of attorney is a document that allows you to appoint someone to manage your affairs in the unfortunate event that your health dips or you become unable to make decisions on your own. This power extends to crucial activities like paying bills, managing your investments, or deciding medical treatments on your behalf.
The person you nominate is called an agent or an attorney-in-fact. The person creating the document—in this case, you—is the principal.
A power of attorney can be “durable,” which means it remains in effect from the date of signing and remains valid even if the principal becomes incapacitated. It retains its authority until it is officially revoked or until the principal’s death.
It can also be “springing,” which means it comes into effect only once the principal is incapacitated, or “special,” which allows an agent—such as a realtor or broker—to take a one-off financial action on the principal’s behalf.
The two most crucial types of power of attorney are:
Medical Power of Attorney
As its name suggests, a medical power of attorney is a document that allows an agent to make healthcare decisions on your behalf. This could involve settling on which medical treatments are necessary, making the call on whether surgery is required, or deciding on appropriate end-of-life care. An agent can also choose hospitals and doctors for you.
Establishing a healthcare power of attorney allows you to ensure that all medical decisions are made according to your preferences through an agent you trust.
This can also be combined with a “living will,” which allows you to provide written instructions to your agent and healthcare practitioners. Often, the two documents are combined and referred to as “Advanced Health Care Directives.”
Financial Power of Attorney
A financial power of attorney puts an agent in charge of making crucial financial decisions on your behalf. This could include paying bills, handling bank accounts, managing retirement benefits, depositing social security checks, and filing taxes.
While the responsibilities are immense, the agent you nominate doesn’t necessarily have to be a legal expert but rather someone you trust to handle your crucial accounts.
A financial power of attorney agent can fall under the “special” category, meaning they will be tasked with carrying out a single transaction, or “durable”, meaning they will have comprehensive control over all your finances.
Why a Durable Power of Attorney is So Crucial
Now that we understand the role of a power of attorney, let’s take a look at why it is so critical in safeguarding your financial and healthcare needs.
Prevents Courts From Stepping In
Without a comprehensive power of attorney, a principal who is suddenly incapacitated due to an accident or sudden illness will have no say in decisions that personally affect them. Instead, a court will step in and appoint a guardian or conservator to decide on their healthcare and financial affairs. Apart from stripping principals of their agency, this can be an expensive process.
It Brings Everyone on the Same Page
Establishing a power of attorney offers a great opportunity to discuss crucial issues related to long-term care and manage finances with the ones you trust. It ensures that everyone is on the same page. It also prevents disputes from arising once you can no longer speak for yourself.
It Protects Your Family
With a comprehensive power of attorney in place, the person you nominate will be able to make decisions without fear of reprisal. Since it is a legally binding contract, no one can accuse the agent—who is often a close member of the family—of financial abuse when making decisions on your behalf.
It Prevents Delays
In the unfortunate case that you’re incapacitated, a comprehensive power of attorney can ensure that your agent continues to pay your bills on time and cash in all your checks promptly. Without the document, all these processes would have to be approved by a court first, which can be a time-consuming and expensive procedure.
Furthermore, it allows your agent to continue engaging with agencies that offer you crucial services and ensure that you’re eligible for public benefits.
Without this document, your family will have to jump through hoops to carry out even the most basic tasks on your behalf, losing time and money. So, be smart and prepare for the unknown by establishing a power of attorney before it’s too late.
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