Rockfleet | Estate Planning

Understanding Powers of Attorney

Powers of Attorney are essential documents for every adult. Irrespective of wealth or marital or family status, every individual 18 years of age or older should execute both a financial and healthcare power of attorney.

If something happens, rendering you incapable of making financial and medical decisions for yourself, without a valid power of attorney, your loved ones will be required to go to court and have a judge officially name a conservator to make those decisions on your behalf. This process is both time consuming and costly. More importantly, it can be avoided altogether by executing two simple documents: a financial power of attorney and a healthcare power of attorney. Upon death, your powers of attorney are null and void.

Financial Power of Attorney

A Financial Power of Attorney empowers someone to make financial decisions for you in the event you are incapacitated or otherwise incapable of making them for yourself. Only one person can serve at a time; however, you may add up to three backups.

Healthcare Power of Attorney

A Healthcare Power of Attorney empowers someone to make healthcare decisions for you in the event you are incapacitated or otherwise incapable of making them for yourself. Only one person can serve at a time; however, you may add up to three backups.

The following important healthcare documents are included with your Healthcare Power of Attorney:

Living Will. You will receive a Living Will based on the state of your legal residence. A living will is a document that allows you to outline the care and medical procedures you approve of to attempt to preserve your life. It includes end-of-life care so you can control what happens to you when you are unable to speak for yourself.
Organ Donor Card. Allows you donate your organ to others in need when you die.
HIPAA Release Form. The HIPPA release form authorizes healthcare providers to provide the individual you named as the agent of your health care power of attorney access to your medical records so that he or she can adequately perform the job as required to do on your behalf.
Intent to Return. For Medicaid to cover the expenses associated your long-term care, you are required to spend down your personal assets including your primary residence. Your residence can be excluded from this if you formally declare that it is your intent to return to your primary residence if and when you become physically able to do. (This document is only included if you own your own home.)
State Specific Health Care Directives. Each state has its own health care directive. State Specific Health Care Directives include the naming of health care agents (redundant with healthcare power of attorney), also includes outlining specific guidance to health care providers about your wishes about the type and level of terminal care you desire, DNR orders, whether or not you desire pain medication, nutrition, hydration, organ harvesting, etc. These issues are more medical in nature than they are legal. We provide the state specific form but feel that completing it should be done with the guidance of your medical professional not your legal or financial advisors.

There is often some confusion about the term “living will.” Especially when your estate plan includes a living trust. The term ”living will” first became part of the public dialogue in 1990 when the U.S. Supreme Court confirmed our constitutional right to die in the Nancy Cruzan Case. Living will is a layman’s term, coined by the media, for the document that outlines your wishes regarding terminal care. Since the Cruzan Case the idea of creating living will has expanded beyond simply outlining your issues about end-of-life instructions and as a result the more accurate name for this document is a Health Care Directive.

Springing POA vs. Durable POA

One decision around powers of attorney is determining when they will into effect. The attorneys with whom we work on creating your estate planning documents have determined the best course of action is to make them effective immediately.

Many people like the idea of springing powers of attorney (the POA “springs” into effect should you be declared incompetent, unable to make your own decisions, or unable to take care of your financial needs) because cause they’re uncomfortable with making their power of attorney effective while they can still manage their own affairs. However, in practice, using a springing power of attorney can cause more problems than it solves. For example:

Delay. Instead of being able to use the power of attorney as soon as the need arises, the agent must get a “determination” of your incapacity before using the document. In other words, someone – usually a doctor – must certify that you can no longer make your own decisions. Family members or friends could challenge your incapacity in court, This could take days or weeks and disrupt the handling of your finances.
HIPAA/Privacy Issues. State and federal laws, including the Health Insurance and Portability Act (“HIPAA”), protect your right to keep medical information private. This means that doctors can release information about your medical condition only under very limited conditions. To certify your incapacity, your agent will need to provide proof that the doctor may legally release information about you to your agent. You may be able to resolve this issue by completing a release form before you become incapacitated. However, your agent could still run into problems caused by bureaucracy or by the doctor’s confusion about what is legally required. Navigating these issues could cause serious headaches and delays for your agent.
Definition of Incapacity. If your power of attorney requires you to be incapacitated, then you’ll have to be incapacitated before your agent can help you manage your finances. But what does “incapacity” mean, and to whom? If you make a springing power of attorney, your document will have to define incapacity. Then, when it comes time for the determination, your doctor will have to agree that you meet that definition. But how do you know now what health changes will cause you to need help managing your finances? What if you want help before you become incapacitated as defined by your document? What if you have some good days and some bad days? What if your agent or your lawyer believes you no longer have capacity, but your doctor disagrees? These gray areas may make it difficult, if not impossible, for your agent to help you when you need it. A springing POA should state who will declare you incapacitated, and whether the POA requires one or two doctors to declare incapacity. If this isn't spelled out clearly in your POA, then the decision could end up in court, so it's crucial to define what constitutes your incapacitation.

You can avoid all of these problems by making a durable power of attorney that takes effect as soon as you sign it. Just make sure your agent understands exactly when and how you want the document to be used. This degree of trust is a basic requirement for naming an agent. If you don’t trust your agent to handle the power of attorney exactly as you intend, you should choose someone else to handle your finances.