Estate planning is not just for the wealthy. It's about protecting yourself and your loved ones, no matter your income or assets. While a will is a crucial part of any estate plan, it's not the only document you need. A Power of Attorney is just as important, and yet many people don't know what it is or why they need one.
In simple terms, a Power of Attorney is a legal document that gives a person you choose (your "agent") the authority to act on your behalf in financial and legal matters. This authority can be broad or specific and can go into effect immediately or upon the occurrence of a specific event, like your incapacitation.
The Two Main Types of Power of Attorney
There are two main types of Power of Attorney you should know about:
General Power of Attorney: This document gives your agent broad authority to handle your financial affairs, including managing bank accounts, paying bills, and buying or selling property. It's a powerful tool, but it's important to remember that it becomes void if you become incapacitated. This is why a Durable Power of Attorney is often the better choice.
Durable Power of Attorney: This is the most common and important type of Power of Attorney for estate planning. A Durable Power of Attorney remains in effect even if you become incapacitated. This means that if you are in a coma or otherwise unable to make decisions for yourself, your agent can continue to manage your finances and other legal matters on your behalf.
Why You Need a Durable Power of Attorney
Having a Durable Power of Attorney in place is crucial for several reasons:
Incapacitation: What would happen if you were in a car accident and couldn't pay your bills or make important financial decisions? Without a Durable Power of Attorney, your family would have to go to court to get a conservatorship or guardianship, which can be a long, expensive, and stressful process.
Control: A Durable Power of Attorney gives you control over who makes decisions for you if you can't. You get to choose your agent, so you can pick someone you trust implicitly to act in your best interests.
Avoidance of a Conservatorship: As mentioned above, a Power of Attorney can prevent the need for a court-appointed conservator. A conservatorship can be more expensive and time-consuming than a Power of Attorney, and a court may appoint someone you would not have chosen.
Flexibility: A Power of Attorney can be tailored to your specific needs. You can grant your agent broad authority or limit their powers to specific tasks, such as managing a particular bank account or selling a specific piece of property.
Key Considerations When Creating a Power of Attorney
Choose Your Agent Carefully: The person you choose as your agent should be someone you trust completely. They will have access to your finances and will be making important decisions on your behalf.
Review and Update: Like a will, a Power of Attorney should be reviewed and updated periodically, especially after major life events like marriage, divorce, or the birth of a child.
Consult an Attorney: While you can find Power of Attorney forms online, it's always best to consult with an estate planning attorney to ensure your document is legally valid and meets your specific needs.
A Power of Attorney is not just a document; it's a gift to your family. It's a way of saying, "I've planned for the unexpected so you don't have to worry." If you haven't created a Power of Attorney yet, now is the time to add it to your estate planning to-do list.
