When you can't control your financial life, make sure someone you trust will. No one is immune from aging or the loss of mental clarity that may come with it. And you're never immune to health crises that may leave you unable to handle the business of your life: paying bills, managing investments or making key financial decisions.
Granting to someone you trust the power of attorney, allows that person -- known as your "agent" or "attorney in fact", to manage your financial affairs if you become unable to do so. Your agent is empowered to sign your name and is obligated to be your fiduciary, (meaning they must act in your best financial interest at all times and in accordance with your wishes).
There are different kinds of powers of attorney, but in estate planning there are two essential types you should know about:
The first is the "Property & Financial Affairs power of attorney," which only goes into effect under circumstances that you specify, the most typical being when you become incapacitated. Often that means your agent cannot act until he or she provides doctors' letters and sometimes court orders to prove you are incapable of making decisions for yourself.
The second is the "Health & Welfare Power of attorney." (Living Will) this is effective if you need medical treatment but are unable to decide for yourself an attorney can decide what form the treament should take. In any case, take care in choosing your agent. That person should be competent, trustworthy, willing to take on the burden of your affairs and financially secure.
If you choose a relative or friend as your agent, you probably won't have to pay them. But if you name a bank, lawyer or other outside party, you will have to negotiate compensation, which can range from hourly fees to a percentage of your assets paid annually.
If you do become incapacitated without having assigned power of attorney, the court will step in to appoint one for you. The full cost of this process will be borne by your family , not including the cost of the appointed annual visits to court to report on your situation. Plus, the person chosen may not be someone you would have picked.
The different types of Lasting Power of Attorney:
There are two different types of Lasting Power of Attorney:
•Health and Welfare Lasting Power of Attorney (Living Will)
A health and welfare Lasting Power of Attorney allows you to choose one or more people to make decisions for things such as medical treatment. A health and welfare Lasting Power of Attorney can only be used if you lack the ability to make decisions for yourself.
•Property and Financial Affairs Lasting Power of Attorney
A property and financial affairs Lasting Power of Attorney lets you choose one or more people to make property and financial affairs decisions for you. This could include decisions about paying bills or selling your home. You can appoint someone as an attorney to look after your property and financial affairs at any time. You can also include a condition that means the attorney can only make decisions when you lose the ability to do so yourself.