Estate Planning For The Long Run

Three common misconceptions about powers of attorney

Every person's estate plan is a little different because each person's situation and estate planning goals are usually different. Many people think of an estate plan to detail what they would like to happen after death. However, if you are creating an estate plan, it is also prudent to plan what you want to happen if you are alive but unable to make decisions for yourself.

One way to do this is by appointing alternate decision-makers with powers of attorney. However, many people do not take advantage of these tools because they may believe some of the common misconceptions surrounding power of attorney documents.

There are different types of power of attorney documents

One common misconception is that there is only one type of power of attorney. However, these documents can vary depending on the type of decisions you want someone else to make for you.

A financial power of attorney is a legal document that allows you to give permission for someone else, called your attorney-in-fact, to act on your behalf regarding your financial matters. This differs from a power of attorney for health care, which names someone to act on your behalf regarding medical matters. Either type of power of attorney can be made durable, which means that it will continue to be in effect if you become incapacitated.

Powers of attorney should be created before they are needed

Another common misconception is that power of attorney documents should be created when someone becomes unable to make decisions on his or her own. However, these legal documents cannot be created by someone who is incompetent.

Waiting too long to sign a power of attorney can also leave you without any decision-maker if an unexpected accident occurs leaving you unable to make your own decisions. If a valid durable power of attorney does not exist when it is needed, your loved ones could be forced to seek guardianship over you, which can be expensive and time-consuming for them and restrictive for you.

Your agent cannot do whatever he or she wants

Many people mistakenly believe that an attorney-in-fact can make whatever decisions he or she wants. With a financial power of attorney, the fear is that an attorney-in-fact can spend someone else's money however he or she wants. With a power of attorney for health care, people often fear that the attorney-in-fact may not honor their wishes for or against certain medical treatments.

An attorney-in-fact is legally obligated to act in your best interest instead of his or her own best interest. However, it is often still a good idea to make sure the person you choose as your alternate decision-maker is someone you trust. If you still have concerns, it may be possible to limit the decisions that your attorney-in-fact can make, although limiting this person's powers can sometimes limit the benefits of naming an alternate decision-maker.

There are many factors to consider when creating a power of attorney. However, the best decisions are made by those who are well-informed and not led astray by common misconceptions.

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