To make sure your financial and legal wishes are followed, it’s important to draw up a power of attorney.
Having an estate plan can sound a bit grandiose, like something reserved for the Warren Buffetts of the world. But in fact, all adults need an estate plan – and in particular a power of attorney (POA).
A POA is written authorization that allows someone to make decisions on your behalf in certain situations. Often those situations involve a medical event that makes it impossible for you to make decisions on your own.
As we get older, a POA becomes even more important. That’s because the odds of an incapacitating medical event increase. If you have an aging parent, it’s important to make sure they have a POA in place as well.
The person who is designated to make these decisions is called an agent. An agent can be authorized to perform these and other responsibilities:
- Sign documents
- Collect your Social Security benefits
- Use your money to pay their bills
- File your taxes
- Operate your small business
- Conduct banking transactions
- Manage your investments
- Buy, sell, and/or manage your property
Reasons to have a power of attorney
Naming a POA is important for many reasons. If you don’t have one and you become unable to handle your financial and legal matters, your family would have to petition the court to appoint a guardian or conservator. Then the court chooses who will be allowed to manage your affairs. It could be someone who may not carry out these responsibilities the way you would have desired.
It can be difficult to think about not being able to manage your affairs. It can also be difficult to bring up the need for a POA with your aging parents. You don’t want your parents to think you are only interested in their assets. But a POA must be executed when they are of sound mind—before they become incapacitated by illness or injury.
A good way to approach that conversation is to emphasize the need to have your parents’ wishes and expectations honored if they are unable to make decisions or manage their legal and financial matters on their own. Having a POA can help to prevent conflicts about your parents’ intentions within the family and may give everyone greater peace of mind.
Types of POAs
There are different types of POAs, which can vary by state. They generally include:
Limited power of attorney
This is authorization to handle only certain tasks, like paying bills or selling a house, and may be temporary.
Springing power of attorney
This type of POA is executed in advance but only takes effect when you become incapacitated. However, these POAs can lead to complications, because it is sometimes difficult to determine when older people are incapable of making decisions on their own.
Durable power of attorney
This document allows an agent to make decisions on your or your parent’s behalf in all circumstances. It goes into effect immediately and stays in effect until you or your parent passes away.
POAs: Common myths and facts
Here are six myths and facts about POAs. They may help convince you – or your parents – it’s a wise course of action:
Myth #1: A POA makes you give up your independence.
Fact: The document appoints someone to act on your behalf for your convenience but not against your wishes. You can also revoke a POA at any time.
Myth #2: Your POA agent could steal your money.
Fact: The agent of a POA doesn’t have unlimited power. They have a legal obligation to make decisions in the best interest of you or your parents.
Myth #3: A POA goes into effect when you die.
Fact: POAs are only effective during a person’s life. The authority it gives ends when the person dies.
Unlike a will, “these documents actually matter when you’re alive,” Alice Choi, an estate planning attorney at Novick & Associates in New York City and Huntington, New York, told the Huffington Post. “It affects your money, your actual quality of life, and everything.”
Myth #4: A POA allows someone to make healthcare decisions for you.
Fact: POAs generally affect only financial and legal decisions. Decisions about medical care are covered under a document called a healthcare proxy or living will.
Myth #5: A POA overrides a person’s will.
Fact: Only the person who executed the POA can create a will or make changes to it. The wishes contained in a will are binding unless they are changed by the person who signed them.
Myth #6: You don’t need a POA if you are young and healthy.
Fact: Every adult should have a POA in case something happens to prevent them from carrying out financial tasks like paying bills and submitting insurance claims. Both you and your parents should have one!
Help your parents pick the right Medicare plan
While you’re helping your parents with their estate planning documents, make sure their Medicare plan still covers their changing needs. Medicare Advantage plans often provide the dental, vision, and hearing benefits that become more critical as our parents age. Check out our easy-to-use Find a Plan tool to compare available coverage in their area.
- ClearMatch Medicare: Find a Medicare Plan
- National Council on Aging: What Is a Power of Attorney (POA)?
- Consumer Financial Protection Bureau: What is a power of attorney (POA)?
- Huffington Post: The 8 Biggest Mistakes People Make with a Power of Attorney