ESSENTIAL ESTATE PLANNING: GENERAL AND HEALTH CARE POWERS OF ATTORNEY

For most people, an estate plan has four parts: (1) a Last Will and Testament, (2) a Financial Power of Attorney, (3) a Health Care Power of Attorney, and (4) a Living Will. You can read my article about an Ohio Last Will and Testament here. This article discusses parts two and three of an estate plan, the powers of attorney.

What is a Power of Attorney?

The “power of attorney” is not a person or some kind of law. Instead, it’s a document. A power of attorney allows a “principal” to appoint an “agent” to make important choices on their behalf. (A “principal” is the person who gives authority to an agent to act on their behalf. An “agent” is the person who is granted and receives authority to act for the principal.)

Although the agent is sometimes called the “attorney-in-fact,” the agent doesn’t have to be a lawyer. Actually, the agent could be just about any adult who the principal is comfortable with and believes will make decisions in their best interest. Often, it is a family member, a relative, or a friend.

Different Kinds of Powers of Attorney

Generally, there are two different kinds of powers of attorney: (1) a General (sometimes called “Financial”) Power of Attorney and (2) a Health Care Power of Attorney. Each of these acts in different ways but together ensure that the overall needs of the principal are appropriately addressed.

General Power of Attorney

This document gives the agent authority to make decisions and act concerning the principal’s property—including, for example, real estate, stocks and bonds, trusts, tax returns, entering contracts, operating a business, and representing the principal in a claim or litigation.

Health Care Power of Attorney

This document allows an agent to make decisions and act concerning the principal’s health care treatment should he or she be deemed “incapacitated” (or unable to evaluate information, or make or communicate decisions, due to a mental or physical impairment). The agent will have the power to allow or disallow health care and may include the ability to decide if hospitals will pull the plug in case the principal falls into a coma.

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Each the General and Health Care Powers of Attorney can be active in different ways. They can be (a) non-durable or durable and (b) immediately effective or “springing.”

Non-durable vs. durable power of attorney 

Non-durable powers of attorney have an expiration date. That date can either be a date-certain or based on an event, which is typically when the principal becomes incapacitated. Non-durable powers of attorney generally are good for short-term transactions only and may not be suitable as estate planning tools. When coupled with a specific (as opposed to a general) power of attorney (which limits the agent’s authority to particular transactions), they may be useful as a transactional business tool when the principal is unavailable to handle a transaction. For example, a non-durable, specific power of attorney may be used by the owner of a business who needs to be several different places at once. If they cannot make it to one business transaction, they can send a representative with this kind of power of attorney to conduct business and sign documents on their behalf.

Unlike the non-durable type, the durable power of attorney has no expiration date (although the principal can revoke it as long as they are of sound mind). Durable powers of attorney can continue even after the principal becomes incapacitated. The durable power of attorney could cover health care decisions, like discontinuing life support or surgery, and financial matters when the principal really needs the help: after they’re physically or mentally incapable of doing it themselves.

Springing Power of Attorney

Generally, powers of attorney are immediately effective after they’ve been duly executed, which means the agent immediately could begin making decisions on behalf of the principal. The springing power of attorney is not effective immediately, however. It “springs” into effect when a specific event that is specified by the power of attorney occurs, which is typically an event of disability or illness and would only be effective if the principal’s physician certifies that the principal is indeed incapacitated.

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Be careful when drafting these documents. The internet is full of “free” resources would allow someone to write a power of attorney for themselves. But just because there may not be a fee doesn’t mean there won’t be a cost. Indeed, there may be a steep price to pay. Powers of attorney are important documents that, if not drafted correctly, can result in disastrous consequences. After all, these documents give the agent authority over the things for which we have worked for most of our lives—and sometimes, even over life itself. Please seek legal assistance before drafting these documents.

If you have any questions or concerns, feel free to give us a call. We help you plan for your future, protect your family and business, and provide for your loved ones through business succession and estate planning.