Estate Planning: Powers of Attorney Explained
Estate planning is something that many people put off until it’s too late. But, it’s crucial to remember that no one knows when their time will come. If something happens and you don’t have an estate plan, your loved ones will be left scrambling to figure out what to do. One of the main aspects of estate planning is choosing the right power of attorney. This document allows you to appoint someone to make decisions on your behalf, regardless of the reason.
This blog post will discuss estate planning, what it is, how to do it, and the different documents you may require. Then, we’ll delve deeper into powers of attorney and how to set them up. We’ll explain the different types of powers of attorney and when they might be necessary. Keep reading, whether planning for yourself or helping a loved one plan their estate.
What Is Estate Planning?
Estate planning is organizing your financial affairs so that your loved ones can easily manage them in the event of death or incapacity. It’s also integral to wealth management, a tool to preserve and grow your assets to fulfill your financial goals. Not estate planning means your family won’t know your wishes for your finances and healthcare or how to manage your affairs if you can’t.
It’s important to note that estate planning is not just for the wealthy. Everyone has an estate, no matter how big or small it may be. Even if you don’t own many assets, you still need to ensure your loved ones have what they need when you can’t provide for them. If you have young children, estate planning is almost a necessity. You’ll want someone you trust to care for them if something happens to you.
How To Do Estate Planning?
Every estate plan is different, as it should be tailor-made to your specific needs and goals. Nevertheless, there are steps you can take to get started.
Inventorying Your Assets
You can’t plan for what you don’t know you have. Therefore, the first step in estate planning is to inventory your assets. Your assets include everything from your savings and investments to your real estate and personal property. Make sure to include all debts and liabilities as well.
Determining Your Goals
After you know what you have, it’s time to start thinking about what you want to do with it. Do you want to protect your assets from creditors? Do you want to be prepared if you become incapacitated? Answering these questions will help direct the remaining steps.
Choosing The Right Documents
There’s a variety of estate planning documents you can use to achieve your goals. The most common are last wills, trusts, advance directives, and powers of attorney. We’ll discuss each in more detail next.
One of the main parts of estate planning is choosing who will receive your assets after you’re gone; this is called beneficiary designation. You can name anyone as a beneficiary, from a spouse or child to a charity or friend.
Putting It All Together
After taking all the steps above, you can implement your plan. Sign all the necessary documents and keep them in a safe place. You should also review your plan periodically to ensure it meets your needs.
Different Estate Planning Documents
You can create a simple estate plan with just one or two documents, or you can have a more complex plan with several. Either way, you need to understand what each does and how it can benefit you. Here are some of the most common estate planning documents:
Also known as a testament, the last will is a document that details your final wishes. It names an executor, who will carry out your desires, and beneficiaries, who will receive your assets. You can also designate a guardian for your minor children and set up a trust for their inheritance.
In a trust, one person, known as the trustee, holds legal title to the property for another person, called the beneficiary. You can use trusts for many purposes, such as avoiding probate or minimizing estate taxes.
An advance directive is a document that lets others know your wishes regarding medical treatment if you become incapacitated. It can also appoint someone to make decisions on your behalf.
Power Of Attorney
A power of attorney is a document that gives someone else the legal authority to act on your behalf. In the following sections, we’ll delve deeper into powers of attorney. Read on to learn more about this crucial estate planning tool.
What Is A Power Of Attorney, And How Does It Work?
A power of attorney (POA) is a legal document that gives another person the authority to act on your behalf in financial, legal, or medical matters. It involves the principal, the person giving the authority, and the agent or attorney-in-fact, who will carry out the principal’s wishes. You may grant the attorney-in-fact limited or broad powers depending on your needs.
Most POA documents only authorize the agent to act while the principal is in a good mental state. The agreement will automatically end if the principal becomes incapable of making sound decisions to protect the principal’s interests and prevent abuse by the agent. Other reasons a POA may be terminated include the principal’s revocation, a court’s invalidation, or when the agent can no longer perform their duties.
The Importance Of Choosing The Right Attorney-In-Fact
When choosing an attorney-in-fact, you want to pick someone you trust implicitly. This person will have great power over your finances and medical affairs, so you must be sure they will act in your best interests. Some characteristics you should look for in an attorney-in-fact include:
- Integrity: You want someone honest and who won’t take advantage of the situation.
- Reliability: Choose someone you know will follow through on their commitments.
- Organization: Your attorney-in-fact will handle plenty of paperwork and details, so organization is critical.
- Communication Skills: The attorney-in-fact should be able to communicate your wishes to others.
- Knowledge: Preferably, choose someone with proven knowledge of financial and medical matters.
Types Of Powers Of Attorney
Healthcare Power Of Attorney
You can sign a healthcare power of attorney (HCPOA) if you want someone else to make health-related decisions for you. For example, they can decide about medical treatment, surgeries, or even end-of-life care. Due to its purpose, an HCPOA kicks in as soon as you become incapacitated. It will only end when you die or regain capacity and revoke the document.
Financial Power Of Attorney
A financial power of attorney allows the attorney-in-fact to handle the principal’s business and financial affairs, such as paying bills, filing taxes, selling property, and accessing bank accounts. The attorney-in-fact must follow the principal’s desires to the best of their abilities and in good faith. Unlike an HCPOA, this document can kick in even when the principal is still mentally capable, depending on the type of financial POA.
- General POA: The agent can act on behalf of the principal in any financial matter. The authority given depends only on state law.
- Special Or Limited POA: The principal specifies the powers granted to the agent. For example, the agent may only have the authority to sell a specific piece of property. You can also set an expiration date for the POA, like if you’re going on an extended trip outside the country.
- Durable Power Of Attorney: The principal incapacity doesn’t affect the authority given. The agent can continue to make financial decisions on behalf of the principal. You may want to consider this type of POA if you have a chronic illness or want to feel more prepared for the unexpected.
How To Set Up A Power Of Attorney
Creating a power of attorney is a pretty straightforward process. Still, you want to do it correctly to avoid any legal issues down the road. The first step is to find the correct form, which you can usually get from an attorney, financial institution, or state government website. Once you have the form, fill in the information about the principal and attorney-in-fact.
Then, you need to decide what kind of powers you’re giving the attorney-in-fact. Consider what you want them to be able to do and how much authority you’re comfortable giving them. After you’ve decided on the powers, list them in the document. Next, sign and date the POA before a witness (or two). The witness can’t be related to either party, can’t be named as the attorney-in-fact, and must be at least 18 years old.
Once everything is signed and dated, give a copy of the POA to the principal and attorney-in-fact; if you’re not the principal, keeping a copy yourself is also a good idea. If you ever need to revoke a power of attorney, you can do so by destroying the original document. You can also send a written notice to the attorney-in-fact, telling them that you’re revoking their authority.
Nesso Wealth – A Solution For All Your Estate Planning Needs
Estate planning is a process that everyone should go through, but it can be daunting. However, with the right help, estate planning doesn’t have to be overwhelming. At Nesso Wealth, we have a team of experienced professionals who can guide you through the entire process, from start to finish. We also offer various other services, from investment management to tax planning and everything in between. Contact us now to learn more about how we can help you.