Uses of Powers of Attorney
In general, you need a power of attorney whenever you want someone else to act on your behalf in a matter of legal significance. The extent of the power you grant to another is up to you. You can limit what someone else can do for you and when someone else can act for you. Some of these limitations are discussed in the articles that follow, but a term you need to be aware of now is durable. When you allow your agent to act on your behalf if you become incapacitated, you have created a durable power of attorney. There are certain instances when a durable power of attorney is crucial.
You need a financial power of attorney any time you want someone else to make financial decisions or conduct business for you. This may be necessary if you need to conduct business long-distance, or if you want your spouse or another family member to be able to conduct your business if you become physically or mentally unable to do so. Of course, some ability to act on your behalf can be created through joint bank accounts and brokerage accounts, but this will not work with all types of property. Furthermore, adding someone to your account can create other types of legal and tax issues that do not arise with a power of attorney.
Example 1: Adding your spouse to the account may change presumptions about whether it is separate or joint property in the event of divorce.
Example 2: Adding a child to your account might be considered a gift by the IRS, which could trigger tax reporting requirements. It could also result in the account passing to that child upon the primary owner’s death.
You need a health care power of attorney if you want someone else to be able to make decisions about your health care in the event you are unable to make or communicate such decisions.
One important reason to have a power of attorney is to avoid having to go through a guardianship (or conservatorship) proceeding in the event you become incapacitated. A durable financial power of attorney and a health care power of attorney allow you to name someone you trust to take care of your affairs immediately if you become incapacitated. Without these documents, it maybe necessary for someone to hire a lawyer (ultimately at your expense) and go through a court proceeding in order to be able to carry on your affairs by being named a guardian (or conservator). The expenses of a guardianship reduce the assets available to be used on your behalf.
Being named a guardian places additional burdens on that person. While an agent under a power of attorney does owe a duty to act in the principal's (your) best interest, the agent is relatively free to conduct business and account for his or her actions without court supervision. A guardian is under the continued observation of the court. The guardian must provide a specific type of accounting to the court on a periodic basis and may need to first get the judge's permission to do certain things.
One good reason to have a power of attorney is to avoid having to put your parents through the guardianship procedure. It can be a traumatic experience for elderly people to have a sheriff's deputy serve them with guardianship papers, appear in court and hear people talk about whether they are incompetent, and then have to see mental health professionals for a competency examination.
Many people with Alzheimer's disease simply and comfortably allow a spouse, child or other family member to take over their affairs through a power of attorney. Putting such people through a guardianship procedure might not only be expensive and traumatic, but also might permanently damage the relationship with family members. There is also the very real possibility that the judge will decide a guardian is not necessary, even though it is clear to everyone who knows your parents that they are not able to manage without one. Now your relationship is seriously damaged and your parents are no better off than before.