Powers of Attorney: An Effective Estate Planning Tool

A power of attorney is a document which allows you to appoint someone else to act on your behalf. There are many different types of powers of attorney, but generally powers of attorney in California fall into two categories:

Powers of Attorney for Financial Matters
Powers of Attorney for Health Care, now referred to in California as an Advance Health Care Directive

Should You Have a Power of Attorney?

A comprehensive estate plan includes both a Power of Attorney for Financial Matters and a Health Care Power of Attorney (now referred to in California as an Advance Health Care Directive.) Together these documents provide a plan for incapacity; if you are incapacitated as a result of an accident, injury or illness, your powers of attorney appoint someone to make financial and medical decisions on your behalf.

Creating valid powers of attorney can effectively eliminate the need to obtain a conservatorship in the event you become incapacitated. A conservatorship is a court proceeding where the court will appoint someone to act on behalf of an incapacitated person. Conservatorships are discussed in further detail in a separate article on our website, but are generally criticized as being inflexible, expensive arrangements requiring court approval and supervision.

I Have a Trust and/or a Will. Do I Need Powers of Attorney?

A will is a testamentary document that has no legal effect until you die. A will is not a substitution for powers of attorney in that your executor named in your will does not have the legal authority to act on your behalf during your lifetime. The executor named in your will can also be named as your “agent” in your powers of attorney. The agent is the person authorized to act on your behalf in your power of attorney.

A trust names a trustee to manage the assets held in the name of the trust. If any assets are not titled in the name of the trust, the trustee will not have any legal authority to act with respect to those assets. The trustee of your trust is not authorized to act with bank accounts that are not titled in the name of the trust. The trustee of your trust is not authorized to act on your behalf with respect to your government benefits, insurance matters, or tax matters; your trustee of your trust is not authorized to sign your tax return on your behalf. In short, there are many important financial decisions that your trustee is not authorized to make. Even if you have a trust, it is important to also have a financial power of attorney.

What Does a Financial Power of Attorney Include?

A power of attorney for financial matters allows you to appoint someone to act on your behalf with respect to certain financial matters or decisions. Some of the types of decisions that may be covered by a financial power of attorney include:

Management of real property
Ability to purchase or encumber real property
Ability to control and manage partnerships and limited liability company memberships
Management of investments
Ability to collect debts
Ability to pursue litigation
Ability to hire and pay for the services of investment advisors, accountants, attorneys, and other professionals
Ability to pay taxes and sign tax returns
Banking powers, including the ability to open and close accounts, write checks, and make deposits
Safe deposit powers, including the ability to access safe deposit boxes, add or remove items, and terminate contracts for such boxes
Estate planning powers, including the ability to create, amend, or revoke estate planning documents or execute a disclaimer
Gifting powers, including the ability to make gifts to utilize the annual exclusion from gift tax, gift tuition or medical care directly to the provider, or consent to the splitting of gifts by a spouse
Retirement plans and life insurance, including the ability to select or change benefits, payment options, and make elections or rollovers
Authority to use or cancel credit cards

A power of attorney may encompass many of the above powers, or it may be limited in scope to only one or a few of these powers. For example, you can execute a power of attorney allowing a friend or relative to handle the sale of a specific interest in real property while you are on vacation.

A power of attorney can be durable in duration, meaning it is not affected by the subsequent incapacity of the person creating it. Alternatively, the power of attorney may expire upon a certain date or the occurrence of a certain specified event.

A power of attorney may be immediately effective upon the execution of the document, or it may be springing, meaning it does not become effective until the occurrence of a particular event, such as a determination by a physician that the person who created the power of attorney is incapacitated or otherwise unable to manage their own financial affairs. It is also possible to have a power of attorney that is a hybrid of the two; immediately effective with respect to certain powers, such as the ability to transfer assets to a specified trust, but springing with respect to all other powers.

Do I Need an Advance Health Care Directive?

An Advance Health Care Directive (AHCD) allows you to appoint someone to make medical decisions on your behalf in the event you become incapacitated or are otherwise unable to express your wishes with respect to medical treatment and the disposition of your remains in the event of your death. An AHCD does not authorize the agent named in the AHCD to pay for your medical care and treatment from your assets; this would be covered by your Financial Power of Attorney.

Some of the types of decisions that may be covered in your Advance Health Care Directive include the following:

End-of-life decisions, including the ability to terminate life support
The ability to gain access to medical information and other personal information
The ability to hire medical professionals and care providers
The ability to consent, or refuse to consent, to medical care or psychiatric care
Provide relief from pain
Provide for spiritual or religious needs
Provide for companionship
Permit anatomical gifts
Allow for an autopsy to be performed
Provide for the disposition of remains

I Have a Durable Power of Attorney for Health Care. Is it Still Valid?

If you have an existing Durable Power of Attorney for Health Care, check the date when the document was executed. If it was signed prior to 1992, it expired seven years from the date it was executed, and you need to sign a new document since your document is no longer valid.

If you have a Durable Power of Attorney for Health Care, it probably predates the enactment of the Health Insurance Portability and Accountability Act (HIPAA). The Privacy Rule of HIPAA went into effect in April of 2003 and prohibits the disclosure of certain medical and personal information, which is referred to as “Protected Health Information.” In order to ensure that your document will be honored by a health care provider, ask your attorney to review your document to make certain it complies with the requirements of HIPAA.

Seek Experienced Legal Representation When Planning Your Estate

If you need assistance in planning your estate, seek experienced legal counsel. The attorneys at the San Diego estate planning firm of Law Offices of Scott C. Soady, APC have extensive experience in California estate planning matters. We welcome your inquiry and invite you to contact us by e-mail, or call us toll-free at (877) 435-7411 within California, or (858) 618-5510 outside of California to schedule a free in-house consultation.