Power of Attorney: Why It Could Be Your Most Important Estate Planning Document
What is the most important document in your estate plan? When asked this question, you probably immediately think of your last will and testament or your trust. However this may not always be the case. Many times the most important estate planning document may be a well drafted financial power of attorney. A financial power of attorney is a document appointing someone else to have the authority to manage your financial affairs on your behalf. The individual making the power of attorney, granting this authority, is called the “principal” and the individual appointed under the document, granting this authority, is called the “agent.”
A power of attorney is generally made effective immediately upon the execution of the document, even if the principal is fully competent and able to solely manage his or her affairs. Executing this document does not give up the principal’s power to manage his or her own affairs, but simply grants authority to the agent to be able to act as well. As long as the principal is competent the power of attorney can be revoked or replaced at any time.
However, a power of attorney really becomes most important if an individual becomes incapacitated (either mentally or physically), to the point that he or she is no longer able to make financial decisions. If the individual had a well drafted power of attorney in place, before becoming incapacitated, his or her agent will be able to immediately step-in, without any court involvement, and make any financial decisions that the principal would have been able to make if not incapacitated.
Unfortunately, if an individual becomes incapacitated and does not have a well drafted power of attorney in place, the individual’s family will most likely have to undergo a cumbersome process in order to access and manage the disabled individual’s finances. Typically this will require filing for guardianship of the property of the disabled individual.
The only way to obtain a guardianship of the property is by going through a formal court proceeding. During this proceeding there is usually an attorney representing the Petitioner (the person seeking to be appointed as guardian), as well as another attorney representing the rights of the alleged disabled person. Even a very simple guardianship case will usually result in several thousand of legal fees just to have a guardian appointed.
In Maryland, once a guardianship is in place the court supervises the continuing administration of the guardianship. Once appointed, a guardian has to obtain court permission before undertaking many actions involving the assets of the disabled individual (such as making gifts or paying attorney fees). Also, a guardian must file an inventory and annual accountings with the court to report all activity with the disabled person’s assets. As you can imagine, this can be a very time consuming and costly process, which oftentimes leads to the need for further legal services. Fortunately, all of this can be avoided if the disabled individual had a well drafted power of attorney in place before becoming incapacitated.
If you don’t already have a power of attorney, you should meet with an attorney to discuss preparing one for you. And even if you already have a power of attorney, you should consider having it reviewed by an attorney to make sure that it has everything that is needed to be effective. This is especially true if you have a power of attorney that is several years old or one that was drafted in a state other than the state in which you currently reside.