Good to Know
CFP Board expects CFP® Certificants to understand how to protect a client’s assets and guide health care decisions in the event of incapacity. Let’s make this personal - who would make medical decisions for you if you were temporarily unconscious or suffering from a debilitating disease such as Alzheimer’s? How about financial decisions? For many, a well-drafted power of attorney (POA) may be part of the answer.
Before continuing, let’s identify the players in a POA. The principal is the individual giving power to another individual or institution referred to as the agent or attorney-in-fact. A POA is a legal document that authorizes an agent to act on behalf of the principal. As principal, the power you give to the agent can be broad-based or highly limited, depending upon your specific goals. Read on to be sure your current powers of attorney (you do have them, right?) protect your money and health while simultaneously protecting your autonomy. We begin our discussion with General vs. Limited POAs.
General vs. Limited Powers of Attorney
A general POA gives your agent the power to exercise many of your legal rights. For example, you might give your highly trustworthy spouse a general POA that empowers him or her to make legally binding decisions for you without limitation. Key point – you are not just delegating powers, you are delegating autonomy over your right to control your own finances and/or health care decisions.
However, certain powers may NOT be delegated to an agent, including the power to:
- Change the principal’s last will and testament,
- Make gifts,
- Exercise power after the principal’s death, and
- Designate another person or institution to act as the agent.
In sharp contrast to a general POA, a limited POA restricts the agent’s authority to a specific matter and/or a specific time frame. For example, if you must be out of the country when loan documents need to be signed, you could give a trusted individual a limited POA that restricts his/her power to signing specific loan documents during a specific period of time. Key point – you are preserving most of your autonomy in a limited POA.
Medical and Financial Powers of Attorney
Your agent has the power to make medical care decisions on your behalf in a medical POA. These decisions can include the selection of physicians, procedures, treatments, and diagnostic tests. A financial POA gives your attorney in fact the power to make decisions over your financial affairs such as managing real estate, investments, and bank accounts. Medical and financial POAs can be general or limited.
Durable and Springing Powers of Attorney
A power of attorney becomes invalid at the principal’s incapacity unless it is “durable.” A durable POA is said to endure beyond the principal’s incapacity. But what if you want to maintain full control (autonomy) over your medical and financial decisions until you are incapacitated? You would direct your attorney to add a springing provision to the POA. A springing provision prevents your agent from acting until you are incapacitated. A durable POA “springs” to life at your incapacity.
Frequently, an incapacity “trigger” provision specifies exactly when the durable POA springs to life. As but one example, a committee of three physicians, one of whom must be your own physician, must certify that you are incapable of making your own decisions before the durable POA springs to life.
Caution – POAs are not valid beyond the principal’s death.
Using Your POAs
Customizing Your POA
The provisions within different POAs can be combined to fit your specific needs. For example, assume you want to empower your spouse to make broad-based financial decisions for you but only if you are incapacitated. You would have your attorney create a general, financial, durable POA with springing provisions.
POAs and Your Adult Child
Federal law prevents your doctor from discussing your adult child’s injury or illness with you. However, if you are an agent in your child’s medical POA, you are entitled to this information.
Review your own incapacity plan, including any POAs currently in place. If you find potential gaps in your plan, consult an attorney to help you make the best decisions for your situation. Be aware that state laws may differ. For example, some states combine a medical POA with an advance medical directive in one document. An advance medical directive specifies your wishes concerning end-of-life care. In addition, POAs are not the only way to manage incapacity. Revocable trusts can also be used for this purpose.