What is a power of attorney and how important is it in estate planning?
When you're talking about end-of-life planning, the term "power of attorney" gets thrown around a lot. This is an important element of your estate plan because it empowers you to decide who will make decisions when you're no longer able to do so yourself.
So what is "power of attorney" anyway?
In essence, a "power of attorney" (POA) is a legal document that gives another person, called an agent or "attorney-in-fact," the ability to act on your behalf in some context. Note that a person who gets power of attorney is not necessarily an actual attorney; you can just as easily give power of attorney to a trusted friend or family member.
What types of power of attorney are relevant to estate planning?
As a rule, there are two categories of decisions that need to be made at the end of your life: medical decisions and financial decisions. As such, you need two distinct powers of attorney:
- A financial power of attorney makes financial decisions, such as managing your retirement accounts, filing tax returns or signing checks.
- A healthcare power of attorney makes medical decisions on your behalf if you are incapacitated due to and illness. A living will provides instructions for your healthcare power of attorney.
As we just mentioned, the key is to empower someone to make decisions on your behalf when you're not able to make those decisions yourself. That means you need either a durable power of attorney (DPOA), which persists even when you are incapacitated or a springing power of attorney, which comes into effect when you are unable to make decisions yourself.
Notably, there are a couple of types of decisions that can't be delegated via power of attorney:
- Your power of attorney cannot make, amend or revoke your Last Will and Testament.
- Your power of attorney cannot vote on your behalf (they can request an absentee ballot for you, but you still have to fill it out).
Who should I choose to be my power of attorney?
Remember, your goal when choosing your POA is to find someone who will represent your interests well. This may not necessarily be the person who is closest to you. Most people select their spouse, adult child, another relative, or a close friend. However, you are allowed to pick anyone you prefer.
Another thing to keep in mind is that you don't have to pick the same person to make your medical and financial decisions. You can assign different responsibilities to different people if you think they're better suited to different types of decisions. Keep in mind, though, that if medical and financial decisions overlap, your powers of attorney could come into conflict. So, if you're going to divide up responsibilities, be sure they are people who can work together well.
This leads us to a second point. You really don't want to designate more than one power of attorney for the same responsibility. If your POAs disagree on something, they might have to settle their disagreement through litigation. What you can do is designate an alternate. An alternate is someone whose power of attorney comes into effect only if your first choice predeceases you or is otherwise unable to exercise their duties.
Understand the power of a plan
We have walked through the process of estate planning with many Arizona families. We can confidently tell you that these decisions are never easy. Assigning a specific, individual decision-maker is an important step because it helps to limit the potential for disputes. Your family could face tough choices at the end of your life. It is impossible to overstate the power of a plan.
At Brown & Jensen, we can help you make the right choice for your financial and healthcare power of attorney and draw up the Power of Attorney documents to ensure that your final wishes are respected. We'd be honored to meet with you and discuss your estate planning needs in a free consultation. Contact us today.