Most people are aware of the importance of having a will and a trust, but too few think about other critical documents they should have prepared as well. One of the most important documents in your estate plan is a power of attorney.
A power of attorney gives an individual (the “agent”) the legal authority to act on behalf of you (the “principal”). This is an essential document to ensure that certain financial and legal decisions can be made and actions can be taken on your behalf in the event you become incapacitated due to illness or injury.
If you or a loved one are approaching the age of retirement, it's especially critical that you have a power of attorney prepared, and that it cover all the areas you need it to. Far too many people have a power of attorney that covers the bare minimum. At The Browne Firm, we make a distinction between what we call a “standard” power of attorney which is what most people have versus an “enhanced” power of attorney which is what we want for our clients so you will have maximum protection.
3 Types of Power of Attorney in New York
The type of power of attorney you need to have prepared depends on your specific circumstances and needs. There are three basic types:
- A nondurable power of attorney is typically used for situations where the principal needs an agent to act on their behalf for a specific period of time or for a particular transaction, for example, to sign a contract, close on a piece of real estate, or handle financial matters while the principal travels abroad or deals with personal matters that make it impossible for them to do so themselves. A nondurable power of attorney remains in effect until the principal revokes it, becomes mentally incapacitated, or passes away.
- A durable power of attorney is necessary for an agent to act on behalf of a principal who is mentally incompetent or is physically disabled and unable to make legal and financial decisions and take actions on their own and can go into effect as soon as it is executed.
- A springing power of attorney also allows an agent to act on behalf of a principal who is mentally incompetent or is physically disabled and unable to make legal and financial decisions and take actions on their own. However, this type does go into effect right away. Instead, it “springs” into effect when certain conditions are met or once certain events occur, for example, when the principal experiences disabling illness or injury.
All three types of power of attorney can be quite limited with regard to the permissions it gives the agent. It's up to you and your attorney to work together to make sure your document is enhanced to include everything it needs to.
Standard Vs. Enhanced Power of Attorney
If you have or someone in your family has had any of these power of attorney types prepared by someone outside The Browne Firm, it's most likely a standard power of attorney and will allow the agent to make decisions and act on behalf of the principal on a specific range of issues such as signing contracts, selling real estate, and managing bank accounts.
However, unless you have specified in the document that the agent should have additional permissions, that person will be unable to step in and act on your behalf with regard to other important actions and decisions. This may be particularly important for older people—those approaching or having already reached the age of retirement.
What Powers Can an Enhanced Power of Attorney Include?
There are a surprising number of essential permissions often overlooked when a power of attorney is created. Most standard powers of attorney do not include essential permissions that we recommend be addressed in your enhanced elder law power of attorney. Consider the following:
- Medicaid planning: An elder law power of attorney may include provisions that allow the agent to engage in Medicaid planning, which may involve transferring assets, creating trusts, or taking other steps to help the principal qualify for Medicaid benefits.
- Long-term care planning: An elder law power of attorney may grant the agent authority to make decisions related to the principal's long-term care needs, such as selecting an appropriate nursing home, assisted living facility, or in-home care provider.
- Gifting: An elder law power of attorney may provide the agent with the authority to make gifts on the principal's behalf. This could be done for tax planning, Medicaid planning, or to support the principal's family members or other loved ones.
- Trust creation and management: An elder law power of attorney may allow the agent to create and manage trusts on behalf of the principal, including special needs trusts, which can provide financial support for disabled beneficiaries without jeopardizing their eligibility for government benefits.
- Guardianship and conservatorship matters: An elder law power of attorney may grant the agent authority to represent the principal in guardianship or conservatorship proceedings, including initiating such proceedings if necessary.
A power of attorney must grant explicit authority to do certain things like those listed above, and if it doesn't, then the agent simply cannot make decisions or take action on behalf of the principal.
In situations where a power of attorney fails to address key issues like these, the agent may have to go through the guardianship process in order for the court to grant them the appropriate powers. This process is not only a public process, which can be uncomfortable for families, but it is also terribly time-consuming and expensive. Having a power of attorney created correctly the first time can save your family lots of unnecessary stress, time, and money, so be sure to work with an attorney who is not only well aware of your specific needs but also has experience with elder law.
A Trust Attorney Will Help You Identify What Your Power of Attorney Should Include
You don't need to know all the powers that should be given to your agent. An experienced and trusted attorney should get to know you and your specific situation and concerns and then make recommendations about what to include in the document to ensure you or your loved one is protected.
It's easy to assume that you can put off your estate planning until you are older or until you sense your health may be waning. But power of attorney is something you should have in place not just for when you lose your faculties due to old age, but because debilitating injury, accident, or illness could strike at any time, and you can't wait until after it does to prepare.
Now is a great time to make sure the loved ones in your life have the right documents in place to keep them protected. If your parents, grandparents, or someone else in your family has had their power of attorney prepared, find out if it needs to be enhanced. If someone has made you their agent, talk to them about the powers you've been granted and discuss what might need to be added to ensure you are able to take action on critical issues when you are needed most.
At The Browne Firm, we have extensive experience in estate planning and elder law, and we appreciate the opportunity to facilitate conversations with families to ensure you all are well informed and have peace of mind that you and those you care for are prepared and protected. Your initial consultation is free so reach out today to schedule a meeting where we can look at your power of attorney and other estate planning documents together.