The Importance of a Power of Attorney

The most important planning document is a Power of Attorney (POA). This allows someone you trust (perhaps multiple people) to manage your finances. Their abilities might be very broad, or limited. They may not even know they have them! But the ability to help pay a bill, sell a car, and sign contracts can be very important.

Most POA documents are “durable” which means they could be used as soon as they have been signed. The document is as much for convenience as for incapacity. I have not had to go to the DMV since I issued a POA to my spouse! Still, most people do not want anyone else managing their finances until they are not competent. But once that is the case, it’s too late! So it is important to create the POA because we cannot predict when we might become incompetent. It could be a temporary illness or a long term situation, and it might start slow like dementia or fast like a stroke. Be prepared.

Only the person giving powers signs the document. If you are uncomfortable with the idea that someone might be doing things you don’t know about, create the POA and keep it. Often people do not even tell their POA they have been issued powers. That way if something happens your loved ones will likely rummage through your home and find the special file that holds the POA. Just like Dorothy, they realize they had the power all along! It is better to be prepared. Have the document ready, even if you are not willing to share it yet. Keep it in your possession if it makes you feel confident that this trusted person isn’t using it yet. But create the tool.

There are many powers that could be in POA. When I was younger, I just needed someone to be able to sign a check and file my taxes. Now I might need them to sell a house for me, or go to court and sue someone if I get hurt and am laid up in the hospital because of it. Later in life, when I’m at retirement age or older, I will start to consider protecting assets from the costs of long term care. If I’m not competent, my spouse or kids might need to make these decisions for me. They may decide to create a trust under my name, which means I have to trust them to make decisions about who inherits from that trust. They would also need the ability to put my assets into that trust, which means gifting powers are needed. These are very useful powers, in the right hands, but also scary. Some day my kids might decide to give away my house! And hopefully I will have trusted them to do it, knowing they would only take assets out of my name to protect them. Never to hurt me. They are both toddlers, so time will tell.

Many people believe they have everything they need, because they did a Last Will. That only helps if you are in probate, so assets can be transferred to the next owner. POA is important to help keep things running smoothly while you are alive. And with the right powers, it can be used to protect you also.

Attorney Halley C. Allaire is principal in the law firm of Allaire Elder Law, a member of the National Academy of Elder Law Attorneys, Inc., with an office at 271 Farmington Avenue, Bristol, (860) 259-1500, or on the web at www.allaireelderlaw.com. If you have a question, send a note to Attorney Halley C. Allaire and your question may be discussed in a future column.