Most people understand the importance of having a will to explain what should happen to their property after they die. However, estate planning is also about preparing for what could happen during your lifetime.

An illness, injury, or unexpected medical event could leave someone temporarily or permanently unable to manage their finances, communicate their wishes, or make important decisions. Without the appropriate legal documents in place, family members may not automatically have the authority to act on their behalf.

Powers of attorney can be an important part of planning for incapacity before a crisis happens. Depending on the type of document and the authority granted, a power of attorney can allow a trusted person to handle financial matters or make decisions when the person creating the document is unable to do so.

What Is a Power of Attorney?

A power of attorney is a legal document that gives one person the authority to act on behalf of another person in certain matters.

The person granting authority is often referred to as the principal, while the person receiving authority may be referred to as an agent or attorney-in-fact.

The authority granted can vary significantly. A power of attorney may be broad, allowing the agent to handle many different matters, or it may be limited to specific responsibilities or transactions.

Because a power of attorney can provide another person with significant authority, choosing the right agent is an important decision.

Financial Powers of Attorney

A financial power of attorney generally allows an appointed agent to handle certain financial and property-related matters on behalf of the principal.

Depending on the document and applicable law, this authority may include responsibilities such as managing bank accounts, paying bills, handling investments, managing real estate, communicating with financial institutions, or addressing other financial matters.

A financial power of attorney can be particularly important if someone becomes incapacitated and is unable to manage their own affairs.

Without a valid power of attorney, family members may need to seek legal authority through a court process before they can manage certain financial matters. That process can take time and may involve additional expense and oversight.

Planning ahead allows the individual creating the document to choose who they trust to act on their behalf rather than leaving the decision to a court.

Healthcare Powers of Attorney

A healthcare power of attorney addresses a different type of decision-making authority.

Depending on state law and the specific documents used, a healthcare power of attorney or similar healthcare decision-making document can allow a trusted individual to make certain medical decisions when the patient is unable to make or communicate those decisions personally.

This may become important during a serious illness, medical emergency, or other situation involving incapacity.

Choosing a healthcare agent is a deeply personal decision. The person selected should understand the principal’s values and wishes and be willing to communicate with healthcare providers and make difficult decisions when necessary.

It is also important to understand that healthcare powers of attorney and other advance healthcare planning documents may serve different purposes. An estate planning attorney can help explain how the relevant documents work together under applicable state law.

Choosing the Right Person to Act on Your Behalf

The person named as an agent under a power of attorney may have substantial responsibility.

Before making a decision, consider whether the individual is:

• Trustworthy and responsible
• Comfortable handling financial or healthcare matters
• Available when needed
• Familiar with your wishes and priorities
• Able to communicate effectively with family members and professionals

The person chosen for financial decisions does not necessarily have to be the same person chosen for healthcare decisions. Some people prefer to appoint different individuals based on their respective strengths and responsibilities.

It may also be helpful to name a backup agent in case the first person is unable or unwilling to serve when needed.

When Does a Power of Attorney Take Effect?

The timing of a power of attorney depends on how the document is written and the law that applies.

Some powers of attorney may become effective as soon as they are properly executed, while others may be designed to become effective only after a specified event, such as incapacity.

The difference can be important. A person considering a power of attorney should understand when their agent will have authority and what that authority includes.

An attorney can help explain the available options and prepare documents that reflect the individual’s specific needs and goals.

What Happens If You Do Not Have a Power of Attorney?

Many people assume that a spouse, adult child, or other close family member can automatically step in and make decisions if they become incapacitated. In many situations, that assumption may not be correct.

Financial institutions, healthcare providers, and other organizations may require legal authority before allowing another person to act.

Without the appropriate documents, family members may need to pursue a court-appointed guardianship or conservatorship, depending on the circumstances and applicable law. Court proceedings can be time-consuming and may reduce the individual’s ability to choose who will manage their affairs.

Creating powers of attorney in advance can help provide a clearer plan and reduce uncertainty during an already difficult situation.

Powers of Attorney Should Be Part of a Larger Estate Plan

A power of attorney is not a replacement for a will or trust. Instead, these documents often address different stages and circumstances.

For example, a comprehensive estate plan may include documents that address:

• Financial decision-making during incapacity
• Healthcare decision-making during incapacity
• Medical wishes and advance care planning
• The distribution of assets after death
• The management and transfer of property

Together, these documents can help create a more complete plan for the future.

Review Your Documents Before a Crisis Occurs

Estate planning documents should not necessarily be created once and forgotten.

A power of attorney may need to be reviewed after major life changes, such as marriage, divorce, the death of an agent, changes in family relationships, a move to another state, or significant changes in financial circumstances.

It is also important to make sure the people you have selected are still willing and able to serve.

The best time to create or update a power of attorney is before it is needed. Once a person has lost the legal capacity to execute estate planning documents, their options may be significantly more limited.

Plan Ahead With an Estate Planning Attorney

No one can predict when an accident, illness, or other unexpected event may occur. While it is impossible to plan for every circumstance, powers of attorney can help provide a framework for decision-making if you are unable to act for yourself.

By planning before a crisis happens, you can choose the people you trust, communicate your wishes, and help reduce the uncertainty your family may face during a difficult time.

An experienced estate planning attorney can help you understand the different types of powers of attorney and other documents that may be appropriate for your circumstances. Taking the time to plan now can help provide greater peace of mind for you and the people who may need to act on your behalf in the future.