This article is very timely as it may take your bank or financial institution days or weeks to review the Durable Power of Attorney, then you find out you need a physician’s statement and the review begins again!
We used to talk about the problems of this type of document when going over Estate Planning Basics at seminars! You may have heard of “springing” powers of attorney – that is, powers of attorney that “spring” into effect when you become incapacitated. Sounds great, doesn't it? Many people like the idea of these documents in theory, because they're uncomfortable with making their power of attorney effective while they can still manage their own affairs.
The truth is, in practice, using a springing power of attorney will cause more problems than it solves. For example:
- Delays: Instead of being able to use the power of attorney as soon as the need actually arises, the agent must first get a “determination” of your incapacity before using the document. In other words, someone – a doctor usually, – must certify in writing that you can no longer make your own decisions! This could take days or weeks and dramatically disrupt the handling of your finances in the meantime. If they are trying to pay bills on your behalf, they may be in a situation where the financial institution they are dealing with requires a brand new letter from the physician regarding your incapacity every single time they need to use it! Needless to say, It will quickly become an exercise in frustration for your agent trying to handle your financial affairs on a regular basic!
- HIPAA/Privacy issues: State and federal laws, including the Health Insurance and Portability Act (HIPAA), protect your right to keep medical information private. This means that doctors can release information about your medical condition only under very limited conditions. To certify your incapacity, your agent will need to provide proof that the doctor may legally release information about you to your agent. You may be able to resolve this issue by completing a release form before you become incapacitated. However, your agent could still run into problems caused by red tape or by the doctor’s confusion about what is legally required. Navigating these issues will cause serious headaches and delays for your agent.
- Definition of incapacity To state the obvious, if your power of attorney requires you to be incapacitated, then you’ll have to be incapacitated before your agent can help you manage your finances. But what does “incapacity” mean, and to whom? If you make a springing power of attorney, your document will have to define incapacity. Then, when it comes time for the determination, your doctor will have to agree that you meet that definition. But how do you know now what health changes will cause you to need help managing your finances? What if you want help before you become incapacitated as defined by your document? What if you have some good days and some bad days? What if your agent believes you no longer have capacity, but your doctor disagrees? These gray areas will may make it difficult, if not impossible, for your agent to help you when you need it.
You can avoid all of these problems by making a Durable Power of Attorney that takes effect as soon as you sign it. Communication is key to making sure your agent understands exactly when and how you want the document to be used. A degree of trust is a basic requirement for naming an agent! Sometimes we are asked "What if I don't trust the person I am naming as my Power of Attorney?" Simple: Don't appoint them! If you don’t trust your agent to handle the power of attorney exactly as you intend, you should name someone else to handle your finances.
Properly drafted Powers of Attorney should definitely be part of your overall Estate Planning. These should be closely tailored to your own specific situation and concerns, both now and for the future! Contact us for more information to see how we can help.