Powers of Attorney: The Basics

Estate planning discussions with clients always include planning for incapacity. The pandemic has driven home that debilitating sickness can come quickly and recovery may take several weeks, if not months. Powers of attorney are an essential part of every estate plan to ensure that your health care and financial affairs remain well-managed if you become incapacitated.

What is a power of attorney?

A power of attorney is a document whereby an individual (the “principal”) authorizes another (the “agent”) to act on their behalf. There are two kinds of powers of attorney:

1. A health care power of attorney (also known as an “advance directive”) relates to health decisions. In this document, the principal appoints an agent to make health care decisions and consent to treatment in the event the principal is incapacitated and cannot speak for themself. These decisions may involve consenting to surgery, consenting to treatment, and rehabilitation planning and relocation.
2. A financial power of attorney relates to financial and asset-based transactions. In this document, the principal appoints an agent to engage in transactions with respect to the principal’s assets. These transactions can include selling real estate, making withdrawals from retirement and bank accounts, and preparing and filing tax returns.

We commonly say that the health care power of attorney authorizes an agent to talk to the doctor while the financial power of attorney authorizes an agent to pay the doctor.

Why should I have a power of attorney?

Absent a financial power of attorney, if you are incapacitated and a loved one must transact assets held in your sole name, a trip to court for a guardianship or conservatorship will likely be necessary. This will be a significant cost and stress in a likely time of crisis.

Although many states do have health care surrogacy laws that apply in the absence of a health care power of attorney, the person appointed health care surrogate by state law may not be the person you trust most to make health care decisions for you.

Do I have to have the same health care and financial agent?

No! Most of our married clients do select each other as both the initial health care and financial agent and then select a family member as a backup agent if their spouse is unable or unavailable to serve. Many times there is a family member with expertise in health care and another family member with particular expertise in finance. It is perfectly appropriate, if not entirely usual, to select different agents for the different roles. Whoever you select as the agent should be someone who is calm under pressure and unfailingly trustworthy.

What is “incapacity” and how is it proven?

Under Maryland law, the standard for incapacity is where a principal “is unable to manage effectively [their] property and affairs because of physical or mental disability”. This is proven through a written diagnosis from a treating physician who confirms the nature of the disability and that the disability renders the principal unable to manage their own property.

Can my financial power of attorney take effect immediately?

Yes! Unlike a health care power of attorney which can only take effect in the event of your incapacity, a financial power of attorney can become effective before you become incapacitated. Many clients already have an adult child informally assisting them with finances and desire to formalize their child’s authority to act on their behalf. A financial power of attorney can be made effective immediately, meaning that your adult child who is appointed as your financial agent can immediately begin acting in that role without obtaining and presenting a certification of your incapacity.

Can I change my power of attorney?

Yes, so long as you have the capacity. Many of our return visits from clients involve a review of documents drafted many years ago when their children were still minors and could not lawfully act as a power of attorney. Now that their children are grown, it is absolutely possible to prepare a new power of attorney which supersedes the old document and nominates the now-adult children as an agent or backup agent. There are also many other reasons why clients may wish to substitute an agent nominated in a power of attorney.

If you have any questions or would like to discuss your estate planning, please contact Jeremy Rachlin at jrachlin@bulmandunie.com or Jared Sands at jsands@bulmandunie.com or call us at (301) 656-1177