Powers of attorney can be used byparents of college-aged adult children who need health care POAs tointeract with doctors, and business partners find them useful too.(Photo: Shutterstock)

Most of our clients put Powers of Attorney or “POAs” in place asthey age. POAs are legal documents that allow you to name an“agent” (also sometimes referred to as an “Attorney-in-fact”) toact on your behalf for financial or health care decisions, and theyare key components of any estate plan. We believe POAs areincreasingly important beyond your estate plan too.

Consider the following examples: • Parents of college-aged adultchildren need health care POAs to interact with doctors and beinvolved with their children's health care decisions. • A businessassociate needs a non-durable POA to sign a document on your behalffor an important business deal while you are out of the country. •A family member needs a durable POA to manage your personal affairsshould you become temporarily or permanently incapacitated due toan accident or health condition.

POAs are not just for those who are aging. In fact, accidentshappen or circumstances arise where having a POA in place is simplygood financial management.

Let's look at the types of POAs, the differentvariations therein, who should have them, and what they are usedfor.

Different types of POAs

When naming a POA agent, it is important to choose a person whoyou would trust to manage your affairs or make decisions on yourbehalf. There are two basic types of POAs: a financial POA and ahealth care POA.

In actuality, a POA is simply a piece of paper – a legaldocument which states “I trust this named person to make gooddecisions on my behalf.” Without this piece of paper, no decisionsmay be made on your behalf until a court proceeding is held toappoint a person or persons in this capacity, which may wastevaluable time and money.

Financial power of attorney

A financial POA agent may take care of specific and/or allfinancial matters on your behalf. This may include paying bills,writing checks, opening and closing accounts, filing tax returns,buying and selling property (both financial property such as stocksand bonds as well as physical property), or reallocating aportfolio.

The document may specify whether this person is also allowed tochange beneficiary designations on an account, but typically thispower is left out to avoid the possibility of that person namingsomeone other than whom the account owner desires.

Health care power of attorney

A health care POA may make health care decisions on your behalf.This may include whether or not to use a feeding tube or to takeother life-sustaining measures if needed, or whether or not toadmit you to a hospital or care facility.

Another legal document to consider here is the Living Will, alsoknown as a Medical Directive or Declaration to Physicians. Thisdocument exists for the sole purpose of indicating whether or not afeeding tube or other life-sustaining measures should be taken ifneeded.

A health care POA agent is required to follow the instructionsin a Living Will, unless the two contradict each other. In thatcase, it is likely that a court would rule in favor of the documentwhich was signed most recently. Consult with your estate planningattorney if you would like further clarification on this topicregarding your specific situation.

Non-durable vs. durable POA

Any Power of Attorney, whether health care or financial, may bedurable or nondurable. Durable means that the powers associatedwith the POA will remain in effect after incapacitation.

A nondurable POA means that the powers cease uponincapacitation. If the POA document does not specifically statethat the powers are durable, it is automatically considered anondurable POA.

A nondurable Power of Attorney makes sense if you need toachieve a specific goal, like getting a document signed whileyou're unable to be present. Otherwise, typically a durable POA ismost likely what you'll want to achieve longer-term goals.

General POA vs. special POA

Your Power of Attorney designation may be general or special. Ageneral POA agent has much broader power versus a special POAagent. For example, a general financial POA allows an individual tomanage your finances on a very broad level, while you may appoint aspecial financial POA to, say, pay your property taxes or otherbills but not manage your investment accounts. You may have severalspecial POAs executed to ensure all of your financial matters arecared for.

Springing power of attorney

A Springing Power of Attorney is one that comes into effect onlyafter one becomes incapacitated. It is the opposite of a nondurablePOA. This may be ideal if you do not want anyone to have the rightto make decisions on your behalf until you are totally incapable ofmaking them yourself.

How does death affect POA?

After death any POA (whether durable or nondurable, general orspecial, financial or health care) is no longer valid. It isimportant to have all your other estate planning documents inplace, such as a valid Will, to ensure that your affairs are takencare of after death in the manner you wish. Your Will should name apersonal representative who will manage your assets and makedecisions on your behalf after you pass away. While often the sameperson, your personal representative may be a different person thanthe one you name in your Power of Attorney during yourlifetime.

Designating a POA agent

There are three things to consider when designating a POA agent.They are as follows:

Selection: Careful thought is required whendesignating a POA agent. Make sure you select someone you trust toappropriately represent your wishes. Careful selection of the rightrepresentative up front can prevent future problems.

Even if you know someone well, it pays to carefully vet them forany credit or legal issues or potential conflicts of interest. Ifconflicts arise or someone is clearly abusing the powers, it ispossible to bring it to the attention of a judge who can act toremove a POA.

While parents often want to be “fair” and name multiple childrenas heir agents, it is best to only select one, because all mustagree before a decision may legally be made. Many families chooseto separate financial POA and health care POA duties naming onechild who is more financially adept and another with more healthcare knowledge to these respective roles.

It is hard to get multiple adult children to all agree, soselecting one you feel will best represent your wishes is a goodidea.

Communication: Direct and opencommunication is important with all affected parties. Once you'vegone to the trouble to name a POA agent and create appropriatelegal documents, it is critical to communicate thoseresponsibilities to the parties that need to know.

Keep a copy of POA documents in the file with other importantdocuments such as your Will. Make sure the named agent alsoreceives a copy. You may also want to share these documents withyour financial advisor or financial institution. Your attorneyshould also keep copies on file.

Make it clear to your named agents what your wishes are. Helpthem to understand how you've made financial decisions and what youexpect them to do. Share your health care wishes with the agent ofyour health care POA, including any health care directives.

In addition to communicating to the person or people you name inyour POAs, it is important to communicate to anyone affectedincluding other family members. Tell them why you are naming a POAagent and share your expectations.

Documentation: If there is any question at allas to what you expect a POA agent to do, it is best to set it outin writing. Your POA document will define exactly what powers theagent will have.

In addition to clear communication with the agent, be sure tostate in writing why you are naming the POA agent and what yourexpectations are.

Further, we encourage anyone who is acting as a POA agent todocument their actions and decisions. As attorney-in-fact, theindividual is acting solely on your behalf. However, familydynamics can make these decisions complicated or, in some cases,difficult.

Attorneys-in-fact should carefully document any actions and whythey believe it is consistent with the wishes of the person theyare representing. They should say what they think “Dad might havedone” under similar circumstances, for example, and why the choiceis consistent with his wishes. This documentation can be helpful ifsomeone later questions the decision.

POAs can be helpful tools

A Power of Attorney is just one of several essential estateplanning documents. These documents serve a very specific purpose,and when accompanied by your Will, Trust, Medical Directives,Beneficiary Designations, etc., you can feel more confident andsecure that your affairs are in order.

Beyond estate planning, POAs can be very helpful tools to makesure your affairs will be managed the way you desire. When theunexpected happens, it can be incredibly stressful. Having a POAestablished can help defray the stress of a difficult or unexpectedsituation.

This information should not be construed as arecommendation, offer to sell, or solicitation of an offer to buy aparticular security or investment strategy. The commentary providedis for informational purposes only and should not be relied uponfor accounting, legal, or tax advice. While the information isdeemed reliable, Bronfman E.L. Rothschild, LP cannot guarantee itsaccuracy, completeness, or suitability for any purpose, and makesno warranties with regard to the results to be obtained from itsuse. Past performance does not guarantee future results.

Crystal Wipperfurth, CRPC, CFP is a wealthadvisor with Bronfman Rothschild.