Advance Directives: Quality of Life Issues

Overview: Many individuals may rarely consider what might happen to their affairs if they become incapacitated due to illness or injury. Advance directives can provide instructions for how an individual wishes to have their affairs handled in the event of an untimely contingency. This article focuses on the power of attorney.

A Power of Attorney: Test your knowledge.

  • A power of attorney is a legal document that grants authority to another person to make legal decisions on one’s behalf. True or False.
  • In most states, a power of attorney will generally be considered “durable” in nature regardless of whether specific “durable” language is included in the document. True or False.
  • A springing power of attorney becomes effective:
  1. when the principal becomes 
  2. upon the occurrence of a specific contingency.
  3. when the document is signed.
  4. none of the above.

Read here to learn more about advance directives.
Historically, estate planning has focused on the minimization of taxes and the disposition of one’s assets at death. However, managing one’s affairs in the modern world has become more complicated, and quality of life issues (involving health care, finances, and how critical planning decisions are made) are becoming more important.

Consider what might happen in the event of catastrophic illness or incapacity. How, and by whom, would important financial decisions be made? How, and by whom, would important health care decisions be made? Such an event could be either a long gradual process (e.g., a deteriorating medical condition) or something that happens precipitously (e.g., a serious accident). Estate planning tools that can render instructions for certain lifetime contingencies are called advance directives.

One mechanism that can provide for financial decision-making is a power of attorney. This agreement, entered into voluntarily, grants authority to another person to make legal decisions on one’s behalf. The person to whom the authority is given is called the attorney in fact (generally must be an adult) who can act as the principal’s surrogate or agent. The powers granted can be broad or limited in scope, depending on the desires of the principal (the person granting the power), and can include such areas as: insurance transactions; estate transactions; money management decisions; government benefits; and retirement plan decisions.

Making the Document Binding
There are two aspects critical to assuring maximum benefit from setting up a power of attorney. First, the principal must have sufficient mental capacity at the time the document is drawn to make it binding in law. This means that the individual must understand the nature and effect of the document, much the same as required for other legally binding documents.

If a power of attorney is to be used in the event of incapacity, then the document must be a durable power of attorney. A durable power of attorney will remain in full force even upon subsequent mental incapacity of the principal. While this may seem obvious (the document remaining effective when it is most needed), it was not long ago that a power of attorney terminated upon incapacity. Now, all 50 states have statutes providing for a durable power of attorney. The expressed language must convey the idea that the powers granted in the document will not be affected by the principal’s subsequent disability. 

In most states, there is a presumption that a power of attorney is not intended to be durable unless specific “durable” language is included. But state requirements can vary, making familiarity with individual state statutes important. For example, some states require that the document be witnessed or notarized, and not all states recognize a springing durable power of attorney (discussed below).

Choosing a Trigger Mechanism
Sometimes, the principal may want to have the power of attorney take effect only if and when mental incapacity occurs. In such a case, a springing durable power of attorney can be used, which becomes effective only upon the occurrence of a specific contingency (e.g., certification by a physician that management of one’s financial affairs is no longer possible).

A springing durable power of attorney assures that the principal will not be relinquishing important rights while still able to make independent decisions. In crafting a springing durable power of attorney, the method of determining the triggering event—e.g., defining mental incapacity—should be carefully spelled out. (For example, relying on a court determination of incapacity would defeat one of the benefits of using a power of attorney, namely, avoiding court intervention.)

A durable power of attorney is generally inexpensive, easy to implement, and should be considered an essential estate planning tool for all individuals, regardless of age. In the absence of such a document, court intervention (with the accompanying time and expense) may be necessary to carry out one’s financial desires at precisely the moment when facility and timeliness are paramount.

 

Quiz Answers: 1) True; 2) False; 3) b.


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