No one likes to think about being in a situation where you can't make financial or medical decisions on your own behalf. But if you find yourself in such a situation, you'll prevent possible emotional and financial stress for your loved ones if you have a power of attorney in place.
A power of attorney is a document given to a trusted person who has authorization to make personal, business and legal decisions on behalf of someone in the event they are incapable of doing these things themselves. When there are legal fees incurred from court hearings to determine who can make the big decisions, for instance, the incapacitated are the ones who pay the bills — even if they don't know it. An additional health care power of attorney (also known as a health care proxy or advance directive) is required to be able to make critical medical decisions for the incapacitated person.
"It is really empowering for people to take control and not wait until it's too late," said Julie Schoen, deputy director of the government's Administration on Aging agency's National Center on Elder Abuse.
Elderly planning experts strongly suggest everyone over the age of 18, prepare a power of attorney document. When no power of attorney is in place, loved ones must petition to a court for guardianship, which grants them the rights to make important decisions but under the oversight of the court. In some cases, it could result in litigation between two or more family members who believe they should be in charge. The guardian must also return to the court to get approval for major decisions.
Leaving guardianship up to the courts or an 11th-hour applicant could place very critical decisions in the wrong person's hands. "You need someone you trust and who will do what you wish," Schoen said. Financial crimes against the elderly are on the rise, and elders are losing out on anywhere from $3 billion to $36 billion a year, according to Consumer Reports. What's more, only one in 44 cases of financial abuse is ever reported, according to the National Adult Protective Services Association, and 90% of abusers are family members or others who were trusted.
It's best not to attempt to fill out these documents on your own, and instead work with an attorney you can trust, experts said, since all states interpret these documents differently and in some cases the documents can be voided if done incorrectly. In New York, for example, any changes to the document or additional resolutions must be made in the modifications portion, such as adding a "gift rider" that allows the agent (the person with the power of attorney) the ability to move around brokerage and retirement accounts. This can be especially helpful when assets need to be shuffled around to apply for government benefits, said Elizabeth Forspan, an attorney at Ronald Fatoullah & Associates in Great Neck, N.Y.
For younger people, it's imperative the individual, also called the principal, can trust the agent, which could be difficult if they haven't yet found that person in their lives, Forspan said. People who would like to change their power of attorney, perhaps after a divorce, should draft a revocation document and create a new one. When preparing the paperwork, Forspan said it is always wise to have duplicates. The individual and the agent must sign the document in front of a notary before it comes into effect. They can then send the documents to third parties, including banks and CPAs, though it is not necessary, she said.