Power of Attorney, and Mistakes That Could Cost You Dearly

Power of Attorney, and Mistakes That Could Cost You Dearly
Mike Valles
If medical complications leave you incapable of making decisions, a power of attorney (POA) will delegate legal authority to someone else to make them for you. That individual (the agent) can then make decisions for you (the principal) that include legal, financial, medical, and business matters.

Why You Need a Power of Attorney Document

Before anything causes you to become unable to make decisions for yourself, appoint someone you trust to handle your affairs in case the unforeseen happens.
There is another reason to give power of attorney to someone: that person may have expertise in an area you do not possess, says LegalNature. An example would be when you need advice on legal matters.

Consequences of Not Designating a POA

If you become incapacitated without a POA, your loved ones might not be able to access your finances. Your bills might go unpaid, or your family might need to scramble to meet immediate financial needs.

If you neglect to appoint a healthcare power of attorney, something similar could happen.  If you have a medical power of attorney in place, it will help to ensure that your wishes are fulfilled.

Without a POA, a court may appoint a guardian or conservator to make decisions for you. This will consume a lot of time, is expensive, and stressful. On top of that, the person chosen may not have your best interests in mind.

The 5 Types of POAs

You can give power of attorney to someone for a variety of reasons, medical or otherwise. It can be for a single area—such as buying a car or piece of property, or as wide as you want—permitting the agent to handle all your financial decisions.

There are five types of POA. Each one is best suited for specific needs.

General power of attorney: This gives the agent lots of power—almost as much as the document’s creator.  The agent has the ability to pay bills, conduct financial transactions, and sign documents.  This may be a good choice in situations where the principal is not incapacitated but needs assistance with decisions or financial affairs.
Special or limited power of attorney: The authority granted by this power of attorney is limited to a specific area—such as the sale of real estate, or even to a specific property.
Durable power of attorney: Before we go on, it’s important to note that unless a power of attorney is specifically designated as “durable,” it terminates when the principal can no longer make decisions, dies, or when the POA is revoked. Adding “durable” gives the agent authority beyond the principal’s incapacitation.

In order for the power of attorney to continue after the principal can no longer make decisions, there must be specific language in the power of attorney that clearly designates it as durable.

Springing durable of attorney: Under this power of attorney, the power to act as an agent begins only when  a specific event happens, for instance, when the principal becomes incapacitated.
Healthcare power of attorney:  In many states, medical decisions are not included in a general durable power of attorney. Someone with healthcare power of attorney can speak with doctors and make decisions on your behalf.  Note that a healthcare power of attorney is different from a living will.  Unlike a living will, it applies to both end of life treatment as well as other areas of health care.
If you neglect to designate a power of attorney, a court may appoint someone to make decisions for you. (Dreamstime/TNS)
If you neglect to designate a power of attorney, a court may appoint someone to make decisions for you. (Dreamstime/TNS)

Child Care Power of Attorney

Unlike power of attorney for yourself, a child care power of attorney temporarily transfers legal guardianship of your child because of your absence.  The document gives a designated agent power to provide care for your child. This may include making decisions about education or the medical treatment the child might receive in an emergency.

Common Mistakes Made With POA Documents

  • Not designating authority over all property—There are many types of property, and POAs generally include a list of various types. Nolo says that leaving out some types (such as digital property, insurance, and retirement plans)—even if you do not possess them now, may lead to considerable loss later.
  • Making the wrong person your agent—This is probably the most common mistake people make when it comes to power of attorney. The person you name as your agent should be reliable, faithful, and willing to act in your best interest.
  • Giving financial and medical POA to the same person—This mistake can lead to problems. Worst case scenario:  the individual may hasten your death to obtain your finances.
  • Appointing the wrong financial agent—appointing an inexperienced or imprudent agent to manage your finances could be disastrous.
  • Making an agent a joint owner of your bank accounts—Obviously, this would give them access to your funds in the bank, which may be hazardous. In addition, if they run into financial problems, their creditors could come after your money.
  • Not updating or revoking a POA—A POA stands until you update or revoke it. Not revoking or updating your POA in situations such as a divorce is a huge oversight.  The document will still be legally binding, although the circumstances under which it was created may have greatly changed.
  • Not appointing a guardian over yourself—When you become incapacitated, you need a trustworthy person to direct your medical issues and treatment.
  • Not checking with your financial institutions—Financial institutions often have their own forms for power of attorney.
  • Not preparing for the transfer of goods after death—Power of attorney documents end when you die. Creating a will or trust enables you to continue guarding your assets from estate taxes and from falling into the wrong hands.

How to Create a POA Document

Since you want to be sure that your desires after you become incapacitated are carried out, it is important to use a  lawyer, most likely an estate planning or elder law attorney.

Who Is a Good Choice for POA?

Selecting someone to have power of attorney for your finances or healthcare should be done with considerable thought. Your POA should be someone who demonstrates responsibility for their own financial matters and understands the financial and personal matters involved. The individual you select must also be able to work with lawyers and doctors. And they should be willing to carry out the wishes of the principal—regardless of the opinions of other parties involved, including family members.

Since power of attorney gives someone temporary power over your medical care and assets, it needs to be worded precisely. A lawyer can help you with this important task.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
Mike Valles has been a freelance writer for many years and focuses on personal finance articles. He writes articles and blog posts for companies and lenders of all sizes and seeks to provide quality information that is up-to-date and easy to understand.
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