Who would make decisions for you if you couldn’t make decisions for yourself?  Does the person you would choose know that you want him to make decisions for you?  Does the person have the legal authority to make decisions for you?

One of the most important estate planning documents that a person can have is a financial power of attorney. A power of attorney permits one person—called the agent or attorney-in-fact—to make decisions for someone else, called the principal.

Without a power of attorney, no one can make financial decisions for you, not your spouse, not children.  No one.  While you may own many accounts jointly with your spouse or with a child and that joint form of ownership permits the joint owner to access the account, too, some assets cannot be owned jointly, such as an IRA or 401(k).

And it is questionable whether you should own assets jointly with your children because of the inherent dangers with this form of ownership. For instance, if you own a bank account jointly with your son and your son is sued, then the money in the joint bank account might be attached by your son’s creditors.

I have always told my clients and readers of this column that not only should they have a financial power of attorney, but a power of attorney that is very comprehensive. You want to draft the power of attorney so that your agent can perform any financial act for you that he may have to take.

I frequently meet with the spouse or child of an elderly person who requires long term care, such as care in a nursing home.  The spouse is asking me to help him qualify his wife for Medicaid benefits.

Inevitably, the planning that I will recommend to the healthy spouse involves transferring all of the couple’s assets to the healthy spouse’s name alone. With a married couple, most of the assets are owned jointly between the spouses.

Transferring assets from the wife to the husband is a gift of the assets being transferred. A power of attorney document that is not comprehensive will not address gifting of assets.  If the power of attorney document doesn’t specifically permit the agent to gift the principal’s assets, then the agent cannot gift the assets.  So, if the husband is the wife’s power of attorney agent, then he would not be able to gift the assets titled in his wife’s name to himself using the power of attorney.

Absent an adequate power of attorney document, the only alternative for the husband would be to file for guardianship over his wife. A guardianship action is a court action.  The husband would have to obtain the reports of two doctors who opine that his wife cannot handle her affairs.  The husband would have to hire a lawyer to file the guardianship action for him.  The court would appoint a lawyer for the wife.

In the context of the guardianship, the husband would have to request the court’s permission to gift the wife’s assets to himself as part of the process of qualifying her for Medicaid. The court may or may not honor the husband’s request to gift the assets to himself.  The point being that if the wife had signed a power of attorney document giving the husband the authority to gift her assets to himself, none of this would have been required.

The expense of the guardianship—several thousand dollars—could have been avoided. The uncertainty of whether or not the court will permit the husband to gift the assets to himself could have been avoided.  Executing a power of attorney document permits you to choose the person who will make decisions for you and the kind of decisions that person can make.

Taking charge of your planning — instead of putting it off or leaving decisions to others — can make all the difference when you need it most. Being proactive gives you more control, clearer direction, and often a lot more peace of mind.