One area often overlooked when putting together an estate plan on your own or online is the inclusion of a well-crafted Power of Attorney component. While this seems relatively simple when you understand what it is for, there are often misconceptions about what it does and how it works. This can become a real issue for the family should you pass away and it isn’t set up to do what everyone thinks it can do.
Most people understand the basic concept of a last will and testament…a document that directs how assets are to be distributed after someone dies. However, according to an article from A Place For Mom, “5 Misconceptions About a Power of Attorney,” there’s a lot of confusion over this legal document.
To help walk you better understand the Power of Attorney process and documents, I thought it would be helpful to talk about each of the 5 misconceptions surrounding the Power of Attorney.
Misconception #1–You can sign a power of attorney, even if you are legally incompetent.
This is definitely not true. This is one of the most common misconceptions. In fact, if you have a document from a medical doctor that says a person is not competent, that person is no longer able to sign any legal documents, including a Power of Attorney. Often time’s people think about certain things that need to be done if something should happen to a parent or loved one and they can no longer do certain things because of their condition, such as accessing a bank account. However, if Dad lost his legal capacity (deemed incompetent by a doctor) just before a power of attorney or living trust was signed, then it is no longer an option. You’ll have to go through a guardianship or conservatorship proceeding through the court to have any control over Dad’s assets.
Misconception #2—You can find a power of attorney document online.
There is no question you can find a Power of Attorney document online, download it, fill it out, and get it signed. But is it legally binding? Possibly not…there is a high likelihood it will not be suited to your particular circumstances. You need to have a Power of Attorney created specifically with you and your situation in mind so it is legal in your state and addresses your family’s needs. Many online documents end up being useless and unenforceable…it’s a big risk to take.
Misconception #3—A power of attorney lets the agent do whatever they want.
The agent under a Power of Attorney has a legal and fiduciary duty to make decisions in the best interests of the person who named them as power of attorney. A Power of Attorney is not a “free pass” to do whatever you want to do, it is designed to do what the person granting it would want you to do in their absence. A Power of Attorney is a big responsibility to do the right thing and should be given to a person who will accept this responsibility and act accordingly.
Misconception #4—There is one power of attorney.
This misconception is why an estate planning attorney is needed for creating an effective and legally binding Power of Attorney. Most people don’t realize there are two main types of a Power of Attorney. There is a “General Power of Attorney” and a “limited or special Power of Attorney.” A general Power of Attorney allows for buying or selling property or managing assets. A limited or special Power of Attorney refers to a specific transaction or task. Which one you need will depend on the laws of your state and the particular circumstances of what you are trying to accomplish.
Misconception #5—A power of attorney survives death.
All Powers of Attorney terminate upon the death of the individual for whom this was created. Once a person has passed, the authority for their agent to act on their behalf passes as well. A durable Power of Attorney allows the agent to act in the event of incapacity but not death.
Having an effective Power of Attorney in place is an important part of an estate plan and requires the specific knowledge of an estate planning or elder law attorney. Investing the time and money to create one that will do what you want it to do is one of the more important components of proper estate planning. Don’t wait until it is too late for a family member (or yourself) to have this document prepared and signed. There is generally nothing good that comes from not having the assurance that someone will be managing your activities when you can’t. Get it done today.