An attorney who has prepared an estate plan may have recommended provisions that prepare for the possibility of incapacity due to a serious medical condition or accident. For example, a living will can address whether an individual would prefer to decline certain life-sustaining measures. A health power of attorney can also appoint someone as an individual’s health advocate to make decisions not specifically addressed by the living will.
Yet not all powers of attorney are the same. Here are some important distinctions to keep in mind. Generally speaking, a power of attorney can be limited in terms of duties and duration. A limited power of attorney may allow another person to act on an individual’s behalf only for a certain purpose, such as transferring an asset on a specific day. A durable power of attorney may apply only in the event of incapacity. Of course, a designation is also possible without restrictions, as in a general power of attorney.
Just as with a do-it-yourself will, it is important to ensure for an individual to observe any applicable procedures required to validly execute a power of attorney. In addition, some financial institutions may impose their own requirements before they will recognize a power of attorney.
In the event of incapacity, an individual may also want his or her financial affairs to be monitored. An individual may have transferred much of his or her estate to non-probate assets, such as IRAs, life insurance policies and/or annuities. Yet what happens if an individual requires liquidity to pay for unanticipated medical costs? A revocable living trust might be the solution in this instance. The principal of this trust can be withdrawn for the individual’s benefit by the successor trustee. That same individual could also be granted a durable power of attorney.
Source: Financial Planning, “Powers of Attorney: Which Type Does Your Client Need?” Katie Kuehner-Hebert, May 12, 2015
