Q: What are the “top 3” legal documents everyone should have?
A: 1. Advance Medical Directive/Living Will
2. Durable General Power of Attorney
3. Last Will and Testament
Q: Which 2 documents take effect immediately, not at death?
A: Last month, we discussed the Advance Medical Directive/Living Will, which I believe may be the most important document for each of us.
Both the AMD/LW and the Durable Power of Attorney are used during our lifetimes, not at death as with a Will. Similar in concept to the AMD/LW, a Durable Power of Attorney is critically important in the even of incapacity. When you turn eighteen (18) years, you are considered “legally competent” and are presumed legally competent unless and until a Court determines otherwise (in a legal guardianship proceeding).
Q: What is a “DURABLE POWER OF ATTORNEY”?
A: A Durable Power of Attorney is a legal document prepared by an attorney which names individuals you choose to act as your Agent or “attorney-in-fact” in the event you are unavailable or incapacitated.
Q: What happens if I am in a serious car accident and don’t have a Durable Power of Attorney?
A: Similar to the problem with medical decision-making if you don’t have an Advance Medical Directive, your spouse or adult children will NOT be able to pay your bills or access your savings or other assets unless those accounts are joint, allowing just one signature.
Most married folk assume that the spouse has access to all assets if held in joint name; this is NOT the case, however, with IRA’s, real estate (including your primary residence), most joint brokerage accounts, and, of course, accounts held in just your name.
If you do not have a Durable Power of Attorney in place (which covers ALL of your assets, not just accounts in one bank or financial institution), your family will need to file a costly and time-consuming Guardianship proceeding in the Courts if you become incapacitated.
Q: What are the various types of Powers of Attorney?
A: 1. General/Limited. A General Power of Attorney attempts to cover all types of transactions which your Agent may have to handle during your incapacity. It may authorize your Agent to handle things which you think are not relevant, for example, access to a safe-deposit box which you do not have right now. The document needs to be all-inclusive to take into account issues which might arise five or more years down the road when you become incapacitated. The more detail, the better, in a document such as this.
Occasionally, we prepare Limited Powers of Attorney which a client wants for a limited purpose (eg. to sell a house) or for a limited time period. The Limited Power of Attorney should really be in addition to, and not in lieu of, a General Power of Attorney.
2. Financial/Medical. Sometimes, attorneys draft documents called a “Medical Power of Attorney.” I don’t use this term because it can be confused with a General Power of Attorney designed to address legal and financial decision-making. Also, some attorneys combine the medical and the legal/financial provisions into one document. I do not do this because I like to keep the Medical Directive to 2-3 pages, whereas the financial Power of Attorney often requires 8-10 pages.
3. Immediate/Springing. All of my Durable Powers of Attorney take effect immediately. Technically, you have the option to make a POA “springing,” which means that it takes effect sometime in the future. The problems with this option are several-fold:
First, if a POA is written so that it is not effective until you are “disabled,” someone has to make this determination. Certainly, you want to avoid going to Court, and a bank teller or financial advisor is not qualified to make this determination. So you must define the term “disabled” in the document, which most attorneys do by requiring a letter from your doctor so stating. Have any of you ever tried to get a letter from a doctor? With no offense intended to the medical professionals out there, it can be very difficult and time-consuming. We have had cases where we were unable to get the proper letter, which made the POA useless.
Second, and perhaps more importantly, I ask clients this question: If you are concerned about what your designated Agents would do now, when you can watch them, shouldn’t you REALLY worry about what they would do with the POA later, when you are incapacitated?
Third, you control the document, meaning you keep the original or direct us to keep it in our safe, and you can amend or revoke it at any time. If the thought of someone having broad powers makes you nervous, think about the alternative: a judge will decide who will handle your affairs if you don’t take the time to do it yourself.
4. Durable/Non-durable. New Jersey requires that, for a POA to be effective, it must clearly state that it “remains in effect even in the event of my incapacity.” The purpose of this rule is to make sure that you intend for your Agent to be able to act even when you can’t watch him or her!
Q: What are some of the issues to consider when making a Power of Attorney?
A: As with the Advance Medical Directive/Living Will, you need to carefully choose the person or persons you know will properly handle your finances. It is a good idea to name folks who manage their finances well and, ideally, have enough money of their own that they would never be tempted to make bad decisions with yours!
You are not required to name family members, and you might not want to tell anyone who you have named if you feel that others may put pressure on you to change your mind. You should always name a “backup” person in the event your first named Agent falls ill or dies. Remember, you can only sign this document NOW when you are healthy!
In Part 3 next month, we will discuss the third and final document which all of us should have in place: a Last Will and Testament.