As the COVID-19 pandemic taught many Americans, serious illness may strike at any time and any age. Of course, in ordinary times, older Americans are at risk of becoming physically or mentally incapacitated. So if you haven’t thought about who’ll handle your personal and financial affairs in the event you can’t, given it serious consideration now. Let’s look at two potential solutions: a power of attorney — and, for optimal protection, a durable power of attorney.
General and Specific Scopes
Various studies have found that one out of every 10 people age 65 or older are affected by Alzheimer’s disease. And roughly one-third of the adult population has at least one of the leading risk factors for stroke. So you shouldn’t assume you’re immune to becoming incapacitated.
To protect your personal and financial interests, consider establishing a power of attorney. This is defined as a legal document authorizing another person to act on your behalf. This person is referred to as the “attorney-in-fact” or “agent” or sometimes by the same name as the document, “power of attorney.”
A power of attorney can be general or specific. The general power of attorney is broader in scope. For example, you might use a general power of attorney if you frequently take extended trips out of the country and you need someone to authorize business and investment transactions while you’re gone.
However, there’s a problem with specific and general powers of attorney: They aren’t valid if you’re incapacitated. For many people, this is actually when the authorization is needed most. Therefore, to thwart dire circumstances, you should adopt a “durable” power of attorney.
A durable power of attorney remains in effect even if you become incapacitated. It terminates only when you die. Thus, the durable option is generally preferable to a regular power of attorney. The document authorizing a durable power of attorney must include certain language required under state law. Your estate planning advisor can help with the details. But you should note that some states allow a “springing” power of attorney, which takes effect when you become incapacitated.
Select the Right Person
When you establish a power of attorney, you’ll need to select someone you trust as an attorney-in-fact. Despite the name, it doesn’t necessarily have to be an attorney, although that’s an option. Typically, the designated agent is either a professional, such as an attorney or financial planner, or a family member or close friend. In any event, the person should be someone who’s adept at financial matters. Regardless of whom you choose, you should name a successor attorney-in-fact in case your top choice is unable to fulfill the duties or predeceases you.
Usually, the power of attorney simply continues until death. However, you may revoke a power of attorney — durable or not — at any time and for any reason. If you’ve had a change of heart, notify the attorney-in-fact in writing about the revocation. In addition, notify other parties who may be affected.
Making Health Decisions
A durable power of attorney can also be used for health care decisions. For example, you can establish the terms for determining whether you’re incapacitated. (Although you should also discuss these matters in detail with the attorney-in-fact to give him or her direction.) Despite some health care use, don’t confuse a power of attorney with a living will. A durable power of attorney gives another person the power to make decisions in your best interests. In contrast, a living will provides specific directions concerning terminally ill patients.
It’s important to note that a durable power of attorney can be established only for someone who’s currently competent. However, just because a person has been diagnosed as having a specific disease doesn’t mean that he or she is incompetent. For instance, if an elderly person is in the beginning stages of Alzheimer’s, it still may be possible to set up a durable power of attorney.
Most people need a durable power of attorney to protect themselves and their financial assets. If you don’t have this arrangement, work with an estate planner to put it, and other critical documents such as a living will, into place.