Incapacity Planning – “What if I Can’t Take Care of Myself?” – Power of Attorney
When people think about estate planning, people immediately think of what will happen to their property after they die. But estate planning covers much more than that. A competent estate planner will also counsel clients to plan for incapacity. Incapacity is when a person is unable to make financial and/or health care decisions for themselves. Incapacity can be caused by accident, disability, illness, or old age. And the fact is, in today’s world and with today’s medical interventions, the chances are that any one of us will be incapacitated at some point, either temporarily or permanently. In fact, the U.S. Department of Health and Human Services estimates that 70% of people currently turning age 65 will need long-term care at some point. So, how should you prepare?
This is the second in a series of five posts on incapacity planning tools available in Minnesota including Power of Attorney, Health Care Directives, Long-Term Care Insurance, and Business Succession Planning.
Power of Attorney
A power of attorney is a written instrument that gives someone (the attorney-in-fact) permission for them to handle property or money matters for you (the principal). The attorney-in-fact should only act in the principal’s best interest and the principal may revoke the power at any time. In Minnesota, there are two types of power of attorney – statutory and common law.
The Minnesota legislature created the statutory power of attorney by passing a law under Minn. Stat. §523. The statute includes the particular format for a power of attorney document. If you sign a statutory form Power of Attorney, you are still able to act for yourself, but your nominated attorney-in-fact also has the power to act on your behalf, effective immediately. By signing this document, a principal gives the attorney-in-fact significant power over his or her assets and the ability to manage them if the principal is incapacitated. This is both the advantage and disadvantage of the document – your attorney-in-fact has access to all of your funds and if they do not act honorably or responsibly, you may need to look at civil or criminal litigation to get the money back. An advantage to the statutory power of attorney is that it is familiar to local banking and insurance institutions and Minnesota law provides incentives and protections to financial institutions who accept and rely on it.
Minnesota also allows custom drafted power of attorney documents known as “common law” power of attorney, provided that they meet criteria spelled out in state law. One of the main advantages of a common law power of attorney is that it can be designed so that it is, “springing,” that is, only becomes active is the principal is incapacitated, and can specify the method for showing incapacity (i.e. doctor’s letter, admission signed by principal). It can also be better at allowing the principal to choose only specific powers – such as authorizing a business partner to have access to business-only assets and not the principal’s personal assets or authorizing someone to enact trust transfers or other planning in the event of incapacity.
That’s all very well you say, but what if medical decisions need to be made? Tune in next time to Part 3 on Health Care Directives…