A Power of Attorney for Property and a Power of Attorney for Personal Care are critical documents yet so many people never put them in place. This article touches upon their importance and why they should be kept current.
I strongly suspect you have heard or read about an individual who is no longer in a position to make rational decisions but never had a properly crafted Power of Attorney (PoA) granting another party specific powers to make decisions on their behalf.
In preparation for this article and my upcoming article regarding Wills, I reached out to a few financial advisors hoping they could share their observations on this subject matter. There certainly was no shortage of horror stories about people who recognized the importance of these documents but who procrastinated to the point where these documents were required but were never put in place or were outdated.
This article should be read in conjunction with my Plan for the Unexpected – Organize Your Records article. In that article, I strongly recommended all critical information be recorded (and backed up) with ease of access in the event other parties must step in to administer your affairs.
As noted in that article I have saved on a USD stick a host of information such as:
- personal records for the family members;
- a document containing the links to websites (eg. banking, utility companies);
- images of bills from utility companies;
- logon IDs and passwords for critical sites (eg. banking and utility companies);
- copies of investment statements, leases for our rental properties, recent tax returns;
- details for critical contacts;
I do my best to keep this information current and I certainly do not dispute that it is time consuming to compile. The way I look at it, however, is that the alternative of not doing this will create greater inconvenience and difficulty for my PoA.
What is a PoA for Property?
A PoA is a legal document in which you authorize another party to make business, legal, and financial decisions on your behalf.
A durable PoA is applicable from the date it is executed and it does not matter whether you are competent or not.
A springing PoA is executed but does become effective until the occurrence of some event such as the incapacity of the person executing the PoA. Generally a physician’s letter or documentation is necessary for this PoA to become effective.
In some jurisdictions it is also possible to select the level of authority your PoA is to have. A financial PoA, for example, might grant your PoA only the right to manage your financial affairs (eg. pay bills) but exclude the ability to sell your real estate.
In other jurisdictions, a General PoA authorizes your attorney to manage your finances and property only while you are mentally capable. Once you become mentally incapable of managing your property, the General PoA terminates and your attorney can no longer act on your behalf.
A Continuing PoA is one in which your attorney can continue to act on your behalf if you become mentally incapable of managing your property.
In the case of a PoA for Property, you may appoint an individual or you may appoint a Trust company or lawyer.
Reasons to Appoint a Trust Company
Just because you may be unable / unavailable to manage your own ‘financial’ affairs does not mean the world comes to an end. Financial decisions (eg. pay bills, collect income from various sources, file tax returns, make home repairs, renew leases for your rental properties, run your business, etc.) must continue to be made even if you do not have the mental/physical capacity to perform the required duties or you are unavailable to carry them out for other reasons.
While many people appoint a friend or family member as PoA for property, there are circumstances where this is totally inappropriate.
The family dynamics may be such that appointing an independent third party such as a Trust company (or another independent third party who is proficient in acting in the capacity of PoA) is the preferable route. In this day and age, blended families are increasingly prevalent which adds to the level of complexity when it comes to managing financial affairs.
Furthermore, some family members have ulterior motives and do not necessarily have the best interests at heart of the individual who has granted the PoA.
Engaging the services of an independent third party is highly recommended when there is the probability that some family members could take legal action if the PoA does not make a decision with which some family members are in agreement. An independent third party experienced in the capacity of PoA is highly likely to exclude emotions when making decisions.
The level of complexity of the individual’s financial affairs is also a factor to consider in the appointment of a PoA. The greater the degree of complexity, the greater the need to appoint an independent third party with expertise in acting as PoA for Property.
There are also situations where a couple may consist of one party who is capable of managing the financial affairs on an ongoing basis while the other would be unable to do so for various reasons. In this case, it may be prudent to appoint an independent third party in the event the ‘capable’ individual is temporarily /permanently no longer ‘capable’.
It goes without saying that fees will be incurred if you engage the services of a Trust Company or lawyer. While some people may be taken aback by the fees, it is extremely important the fees be put in context with the services to be provided. Do not look at the fees in isolation. Look at the level of work involved and the ramifications of something going wrong if a family member / friend acts as PoA for property.
What is a PoA for Personal Care?
A PoA for Personal Care makes personal care decisions (ie. health care and medical treatment, diet, housing, clothing, hygiene, and safety) on your behalf if you become unable to make them yourself. This is sometimes called a ‘personal PoA’.
Factors such as, but not restricted to, mental capacity, geographic distances between the person appointing the PoA and the PoA, the PoA’s other commitments, and family dynamics are factors which should be considered when appointing a PoA for personal care.
NOTE: A lawyer or Trust company will typically NOT act in this capacity.
What happens when no PoA is in place?
Should a PoA for Personal Property and a PoA for Personal Care not be in place, the court will usually step in, deliberate, and appoint someone (known as a conservator) to take care of your medical and financial decisions.
While the court will often appoint a close family member to this role, the following important disadvantages should be sufficient to dissuade you from letting this happen.
- the judicial steps that lead to the appointment of a conservator can take quite some time and can be costly;
- you have no say as to who your conservator will be and the party appointed by the court will have broad authority to act on your behalf.
- although the person may be close to you, they might not be sufficiently responsible / capable to make appropriate decisions. You may not want, for example, your closest relative to make decisions for you or the same person making your medical and financial decisions.
My primary purpose for writing this article was not to make it all an encompassing article on the subject of PoA. I merely wanted to impress upon you that a PoA for Personal Property and a PoA for Personal Care are two critical documents you should ensure are in place and are kept current to account for changing circumstances. Please do not fall in the camp of individuals who agree these documents are critical but never get around to putting them in place before it is too late.
Thanks for reading!
Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to [email protected]
Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.