“Do you have a power of attorney agent?”
“Yes,” the client tells me, “I named him in my Will.”
This is a common question that I ask individuals who come to my office for a consultation and a common response that I receive from the client. Over time, this answer tells me that there is significant misunderstanding among people about estate planning documents.
I always say that there are three, fundamental estate planning documents. Every person over the age of eighteen should have these estate planning documents. The documents are a last will and testament, a power of attorney, and a living will/healthcare power of attorney.
I always tell my clients that a power of attorney and a living will is for them and a Will is for other people. What I mean by this is, a power of attorney and living will permit someone else, someone of your choosing, to make decisions for you during your life if you are unable to make decisions for yourself. A Will is a document that parses out your property to other people after you die.
A Will is an ineffective document during your life. During your life, you can modify your Will anytime you want. You can revoke your Will. Most Wills name a person to handle your affairs, called an executor. But because a Will is only effective after you die, the person you name as your executor has no authority over your property until you die.
If you become ill and cannot handle your affairs, whether financial or health-related, the person you have named as your executor has no ability to handle your affairs for you, because you are still alive and your Will isn’t even effective until after you die. For this reason, while a Will is a very important estate planning document, it is not the complete package.
When people talk about a power of attorney, they are typically talking about a power of attorney for financial decisions. A power of attorney permits a person, called your agent, to make financial decisions for you during your life.
If the power of attorney is drafted correctly, your agent could make whatever financial decision he may need to make for you. Because people may be incapacitated for months or years, I always recommend that they draft a broad power attorney, a power of attorney that permits their agent to make a great many medical decisions for them.
Your agent can only make those financial decisions that the power of attorney document permits him to make. If the power of attorney doesn’t address a certain financial issues, for instance, accessing brokerage accounts or retirement accounts, then your agent may not be able to access any assets that you have in accounts such as those.
The authority of the power of attorney agent ends when you die. After you die, your Will becomes an effective document and the person you have named as your executor takes over the affairs of your estate.
A living will or healthcare power of attorney is a document that permits someone else, called your healthcare proxy or healthcare agent, to make financial decisions for you. Furthermore, if the document is drafted correctly, the living will permits your healthcare proxy to access your medical information, which is a big issue since the Health Insurance Portability and Accountability Act (“HIPAA”) became effective.
HIPAA became effective in 2003, yet, to this day, most living wills that I see fail to address HIPAA. If you have been in a hospital recently, you probably know how important HIPAA is because the law prevents your healthcare provider from sharing your medical information with anyone other than you. For this reason, it is important that your living will address HIPAA, so your healthcare agent can access your medical information.
Like a power of attorney, a living will ceases to be effective when you die, and your Will takes over. Having a Will, power of attorney, and living will is fundamental to any good estate plan.