Delegating your decision-making ability

Clients are sometimes confused about the various aspects of estate planning terminology.  A key concept to understand in any comprehensive review of your financial plan is that of incapacity – the eventuality that you are intellectually or physically unable to make decisions affecting your finances or personal care.  While some people have detailed wills that express their wishes for when they die, some of these have not prepared a power of attorney.

Having a power of attorney does not mean you have a lawyer. It means you have a written document naming a person or persons who have the express authority to make decisions in your place.  A power of attorney may be for a specific narrow type of decision such as dealing with a particular transaction or it may be an enduring authorization to make all types of decisions for you.

A power of attorney is thus be an incredibly powerful document, enabling your delegate to do anything you can do yourself such as spending, buying, borrowing, etc.  One practice that my lawyer friend Patrick Murphy has adopted is to hold the original power of attorney document in a locked cabinet in his office with client instructions to release it to a specific sequence of named attorneys only in case of your incapacity. Thus, if one of the attorneys shows up at his office asking for the document he can do a quick check to confirm your incapacity before releasing it.  This reduces the possibility of it being lost or misused.

Don’t forget there are two types of power of attorney: property and personal care.  These are normally separate documents and may name different people.  You may trust your adult daughter with your finances but prefer that your son the health care professional have sole authority over your care.  In all cases it is good if the people you name have discussed your wishes with you well ahead of any need for their services and that they know where the original documents are stored.