Planning for retirement and older years is a complicated business. Decisions must be made that involve housing, income, investments, health care, and wills. Some of these decisions are emotionally difficult and may require major life changes. Timing the interaction of these decisions also requires careful planning.
Because of the complexity of these issues, many people seek professional help in retirement living and estate planning. Other seniors do this work with the help of their children or on their own. While the temptation to avoid often uncomfortable decisions is real, planning carefully can save individuals thousands of dollars and can avoid unnecessary guardianship or institutionalization.
Powers of attorney are documents that are executed by an individual (the principal) and empower another individual (the attorney-in-fact) to make decisions on behalf of the principal. Often a spouse or child acts as the attorney-in-fact. The scope of decision making granted by the power of attorney can vary based on the wishes of the principal and can include sale of real estate, investment transactions, government benefits issues, and retirement planning. In essence, the attorney-in-fact can act as the principal for issues within the document’s scope.
Powers of attorney can become effective in different ways depending on how they are drafted. Two such ways are a durable power of attorney and a springing power of attorney. A durable power of attorney must be executed while the principal is competent, and it will be immediately effective. It will stay in effect even if the principal becomes incapacitated. A springing power of attorney comes into effect when the principal is no longer competent. A durable power of attorney can be executed well in advance of its use, whereas a springing power cannot be effective until the incapacity of the principal is medically determined. A durable power can be used without the consent of the principal, although it must be used to benefit the principal. A springing power allows the principal to retain control over his or her affairs as long as is practical. Both documents may be revoked by written action of the principal.
Not a health care proxy
Powers of attorney are not the same as a health-care proxy. A power of attorney appoints an individual to handle financial affairs, whereas a health-care proxy confers a right to make medical decisions if an individual is incapacitated.
Deciding which form to use depends in part on the confidence the principal places in the attorney-in-fact. It is also important to consider the impact on family members of the form of the document. Naming one of a number of siblings as attorney-in-fact, for example, can create resentment among the others. Conversely, multiple individuals can be named as attorneys-in-fact, which may cause other problems. Although the creation of power of attorney documents is largely handled by attorneys, a geriatric social worker may be able to help families work through emotional issues arising from these choices.
Drafting and executing power of attorney documents is an individualized process that varies depending on the circumstances of an individual. For this reason it is not a good idea to use a boilerplate form that does not reflect individual needs. At a minimum, the following questions should be considered:
- Should a durable or a springing power be used?
- Is the principal competent at the time of executing the power of attorney?
- Should the power of attorney be broad or be limited to specific authority?
- Is there a trusted individual who can serve as attorney-in-fact?
- Should family members be informed about the power of attorney process?
When properly drawn and executed with a full understanding of their use, powers of attorney can give individuals peace of mind and assurance that their affairs in the future will be appropriately handled.
