Why Do I Need a Financial Power of Attorney or Health Care Directive/Living Will?​

Becoming incapacitated and unable to make your own decisions isn't likely something you think about on a day-to-day basis. But life can be unpredictable.

Having a financial power of attorney (POA) and a health care directive and living will in your estate plan gives you the peace of mind that comes from knowing you're prepared in the event tragedy strikes and you're no longer able to make your own health care decisions or financial decisions.

What Is a Financial Power of Attorney?

A financial power of attorney is a legal document that gives someone — your agent or attorney-in-fact — the right to make financial decisions on your behalf. Don't be misled by the term attorney-in-fact. Your representative does not need to be a lawyer.

While you must draft your power of attorney in accordance with your state's laws, financial powers of attorney are flexible documents that you can customize to your specific financial needs.

Your Agent's Authority in a Financial Power of Attorney

In a financial power of attorney, the agent you appoint has the authority to handle your financial affairs. Depending on how you draft the document, this authority might begin immediately, or it might not be conferred on your agent until you become incapacitated and can no longer make your own financial decisions.

Scope of Financial Matters in a Financial Power of Attorney

You can also specify what financial matters or transactions your agent has the authority to handle. For example, you may want your agent to have the authority to act on your behalf on tax matters only or perhaps to handle your real estate transactions. Or you might grant your agent the authority to act on all your financial transactions.

You can even authorize your agent to act on a single transaction (for example, if you're purchasing property but will be out of the country when the transaction closes).

Why You Need a Financial Power of Attorney

Your financial life doesn't stop just because you become incapacitated. That's why a financial power of attorney is important. Under a financial power of attorney, your agent has the authority to manage the financial transactions specified in the document. This could mean having a broad authority to handle most or all of your financial decisions, or it could be limited to making important decisions about specific financial matters.

How a Financial Power of Attorney Helps You

Depending on the authority they're given under your financial power of attorney, your agent keeps your financial affairs in order, providing for you and your loved ones.

Your agent might handle financial matters such as:

• Overseeing tax issues, such as filing returns and making tax installments
• Paying utility and rent or mortgage payments
• Purchases or selling real property
• Handling securities transactions, such as the sale of stocks and bonds
• Pursuing claims or defending lawsuits
• Collecting and depositing government benefits
• Handling insurance issues, such as premium payments
• Operating a business

Health Care Directives and Living Wills

A health care directive is also known as a health care power of attorney, a medical power of attorney, an advance directive, or an advance health care directive — the terminology will vary depending on your state's laws governing health care directives and living wills.

Your health care directive names an agent who will step in to make medical decisions for you if you can no longer make your own health care decisions.

Your Agent's Authority in a Health Care Directive and Living Will

Like a financial power of attorney, a health care directive can give an agent broad or specific decision-making power. People often combine a health care directive with a living will so their agent has clear instructions to follow in life-or-death situations.

Scope of Decisions in a Health Care Directive and Living Will

Unlike a living will, which is a kind of advance directive that deals specifically with end-of-life medical decisions, such as whether or not to continue life support, a health care directive can cover any health care situation where you're not able to make an informed decision due to mental incapacity.

For example, if you're in a temporary coma after a car crash, a health care directive enables your agent to decide on medical care issues like surgical or drug treatment.

Why You Need a Health Care Directive and Living Will

People often think they don't need to have documents like a health care directive or living will in their estate plan because they've already communicated their health care wishes to their spouse or another loved one. But when you're not able to make your own medical decisions, such documents not only alleviate the burden on your loved ones by letting them know your wishes but also deal with situations where your spouse might also be incapacitated or otherwise not able to carry out your wishes.

How a Health Care Directive and Living Will Helps You

Health care directives often give agents broad medical decision-making powers. Similar to a financial power of attorney, you can also limit your health care agent's power over specific medical procedures. Your agent is your advocate to represent your wishes for medical care when you can't speak for yourself.

Depending on the authority you give them under the health care directive, your agent might make health care decisions about issues such as:

• Surgical treatments
• Drug treatments
• Life support or other life-sustaining treatments
• Cardiopulmonary resuscitation
• Blood transfusions
• Meals and nutrition
• Nursing home or housing
• Health care provider and facility

What Is “Incapacity"

Within the context of a power of attorney or health care directive, incapacity refers to the inability to make decisions due to mental incapacity or to communicate your decisions due to mental or physical impairment. Your power of attorney, health care directive, and living will should define precisely what incapacity means.

For example, you could define incapacity as any physical health or mental conditions that result in the inability to provide for your own physical needs or the inability to manage your own financial affairs.

How Is "Incapacity" Determined?

Your document should specify how incapacity is to be determined. For example, a power of attorney might state that incapacity, as set out in the document, is determined by statements in writing provided by two qualified physicians, or it might require a written statement from the attending physician.

These sections on incapacity must be carefully drafted in your power of attorney or health care directive and living will. Improper or inadequate language could delay your agent's ability to exercise their authority on your behalf. It's always a good idea to speak with an experienced estate planning attorney who can ensure your documents are properly drafted.s

When Does Your Agent's Authority Begin?

For health care directives and living wills, your agent's authority begins when you become incapacitated and can no longer make informed decisions on your own or communicate those decisions.

For financial powers of attorney, when your agent's authority begins will depend on the wording of the document:

• Immediately. A general power of attorney confers authority on the agent from the moment the document is signed.
• Upon Incapacity. Under the terms of a springing power of attorney, the agent's authority begins when incapacity occurs.
• Upon Specific Date or Event. Some powers of attorney come into effect on the occurrence of some future event, such as a specific date range.

All powers of attorney end upon your death, but it's also important to know that general powers of attorney also end in the event of incapacity.

In order for a power of attorney to be effective after you become incapacitated, it needs to be a durable power of attorney for health care or a durable financial power of attorney. A durable power of attorney contains language that says your agent has authority even in the event you become incapacitated.

Who Makes the Decisions if There's No Power of Attorney?

What happens if you become incapacitated and can no longer make decisions on your own, but you don't have a power of attorney or a health care directive in place?

If You Don’t Have a Financial Power of Attorney

Without a financial power of attorney, your family will have to apply to the courts to have someone appointed as a conservator or guardian if there are any financial issues they're unable to handle on your behalf. For example, while your spouse might be able to continue paying the rent or mortgage, they will likely not be able to sell stocks or bonds on your behalf without authorization.

The specific process and terminology vary in each state, but whether your family members apply for guardianship or conservatorship, the end result is expensive and time-consuming. The person appointed as a conservator or guardian will also have to report regularly to the court.

If You Don’t Have a Health Care Directive/Living Will

Without a health care directive and living will in place, decisions about your medical treatment will be left up to your spouse, adult children, or other loved ones. This can place an enormous burden on your family. They will be the decision-makers during (what will most likely be) an extremely stressful time in their lives.

Depending on your state's laws, decision-making authority might be placed on a family member other than one you've already communicated your treatment wishes to.

Be Prepared, and Give Yourself Peace of Mind

You can't predict what life will throw your way, but you can prepare. A financial power of attorney and a health care directive and living will can go a long way to alleviating the burden on your family. To make sure your documents give your agents the authority you want them to have, consult with an estate planning lawyer, who can give you the legal advice you need.