For most of us, the term “estate planning” brings to mind the worst-case scenario: death. While preparing a will is certainly an important and central component of creating an estate plan, what about planning for an accident or an illness that leaves you incapacitated and unable to handle your own affairs? If something catastrophic were to happen, do you have documents in place that would legally enable someone to handle your finances or make medical decisions on your behalf?
Because of our tendency to correlate estate planning with death, most people tend to create their estate plans later in life, or sometimes after they have children. However, attorneys recommend that anyone 18 or older should have not only a will, but general and medical powers of attorney, a living will, and HIPAA authorizations. Not having these documents in place would leave your loved ones in an emotional and stressful situation, and potentially leave you in financial ruin.Who will handle your financial affairs in the event of your incapacitation?
General power of attorney: The general power of attorney is a document that allows you, the principal, to appoint an agent to handle your financial matters. A general power of attorney can be durable or nondurable. A general durable power of attorney remains valid even if you become mentally or physically incapacitated, while a general nondurable power of attorney becomes invalid if you become mentally or physically incapacitated. Lastly, the general power of attorney can have springing powers, which means it goes into effect when a specific event occurs, usually the principal becoming incapacitated. Most people elect to have a general durable power of attorney with springing powers.
It is important to note that a power of attorney does not take away your rights or ability to make your own decisions. Having powers of attorney in place is especially important for single or divorced individuals who are holding individually-owned assets and liabilities, but is still applicable to married couples who have individually-owned assets or accounts that their spouse might have trouble gaining access to.If you are unable to make your own medical decisions, who will?
Healthcare power of attorney: The healthcare power of attorney document allows you to authorize an agent to make healthcare decisions on your behalf. Some states have laws that authorize people to act as substitute decision-makers for an incapacitated person (typically in the order of spouse, adult children, parents, etc.). However, Colorado does not have such a law, and leaves it to “interested persons” to reach a consensus, which can be time-consuming and stressful. As such, this document is especially necessary for Colorado residents.
With healthcare powers of attorney, the appointed agent is typically not allowed to make any medical decisions on your behalf until a physician declares you to be incapacitated. This document also allows you the opportunity to put in writing any specific preferences you have when it comes to medical treatment, including surgeries, medications, pain management, and receiving long-term or palliative care. Even if you trust that your medical power of attorney is well-informed of your wishes, putting those wishes in writing will provide your agent and healthcare team with guidance during an already stressful time. Note that a medical power of attorney does not have any authority to handle your financial affairs, including paying your medical bills, so it is still very necessary to have a general durable power of attorney in place.
Living will or advance directives: a living will is a document that addresses your wishes related specifically to heroic, life-sustaining treatments and end-of-life care. For example, if you wish to receive CPR, but not be kept alive for a prolonged time by artificial nutrition, this document is where you would want to declare those wishes.
HIPAA authorization and release: A HIPAA authorization and release document authorizes medical providers to share your protected medical information with designated individuals. You may include specific language on the timing of the authorization and the type of medical information that you wish to share. This document does not give those named the authority to make any medical decisions on your behalf.
Most estate attorneys recommend distributing copies of your healthcare power of attorney, living will, and HIPAA authorization documents to your medical providers. Having these readily accessible in your medical files will help move things along in the case of a medical emergency.What to consider when appointing your agents:
You may name the same individual as an agent in all documents, or chose to appoint different people. Regardless, you should consider who is best-equipped to handle these duties. The age and health of both general and healthcare power of attorneys are important factors to consider, as they will need to be physically and mentally healthy in order to serve. Additionally, the general power of attorney should be someone who you believe to be financially responsible, whereas a healthcare power of attorney should be someone you trust can handle the emotional pressure of making difficult medical decisions, and who is well-informed of your healthcare needs and wishes.When is it essential for you to have documents governing medical decisions?
Given that healthcare powers of attorney, living wills, and HIPAA authorizations are both very simple and very essential, we generally recommend consulting with your attorney to discuss how to factor these documents into your estate plan (if you have one) and then putting them in place as soon as possible.
One often overlooked situation is not having these documents for your young and unmarried adult children. In many states, including Colorado, parents do not have automatic authority to make financial or healthcare decisions for their child once they turn 18, even if they are claiming the child as a dependent on their tax return, or paying for tuition or healthcare insurance. This is often a difficult situation with divorced parents who may have difficulty coming to an agreement on treatment for an incapacitated child over 18. The intent behind having powers of attorney for your adult child is not to continue to make decisions for them on their behalf as you did when they were minors, but simply to be able to do so in case of a medical emergency or their incapacitation. Remember that this should be done when your child reaches 18, which may be well in advance of college.
Another unique situation is with the deployment of military personnel. Those in the military will often need to appoint an agent to handle their financial affairs while they are overseas. While many power of attorney documents that have springing powers go into effect at the time the principal becomes incapacitated, military members often have power of attorneys with springing powers that go into effect at the time they are deployed. The document can also be durable to ensure that it stays in effect if the individual becomes incapacitated.
Once you have created and executed these documents, we suggest reviewing them, along with any additional estate planning documents, at least every 3 – 5 years. You may need to update them sooner if you experience a major life event like moving to another state, or getting married or divorced. Though most states will recognize another’s power of attorney form, we suggest updating them after an interstate move, as each state has their own rules governing power of attorney documents.
Ideally, these documents will never be necessary. But if the need does arise, you and your loved ones will be glad they are in place. As part of our comprehensive financial planning process at Weatherstone, we will review your current estate planning documents and make note of any updates that you may want to discuss with your attorney.
Sara Kohr, CFP®
This document is for informational purposes only and does not constitute legal or estate planning advice. Weatherstone does not provide legal advice so we encourage you to consult with an attorney to ensure your unique needs are considered, and that you have appropriate documentation consistent with your state of residence requirements.