Editor’s note: This is the third article in a monthly step-by-step guide for getting your financial house in order. Yes, it’s a daunting process, but we’re breaking it down into manageable steps that you can take each month until the task is done. We’ve already brought you How to Put Together Your Personal Net Worth Statement and Two Estate Planning Issues You Should Never Overlook, about asset titling and beneficiary designations. For June, we’re reviewing financial and health care powers of attorney.
Your life changes — and so should your legal documents. At least once a year, it's wise to review your financial power of attorney (POA) and health care power of attorney (HCPOA) to make sure they still reflect your wishes and current life circumstances.
If you don’t already have these documents, you should make sure to get them in place for you and any legal adults (over the age of 18) in your family.
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By having a POA and HCPOA, you can avoid going through the court process to appoint someone to make decisions on your behalf if you become incapacitated.
The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.
It is especially important to review and update any existing documents, or put them in place, after major life events such as marriage, divorce, a child turning 18, the death of a trusted loved one or a serious health diagnosis.
The role of a financial power of attorney
If you don’t already have one, you should get a general or financial POA. This is a document in which you name someone as your “agent” to act on your behalf in financial matters if you are unable to make decisions.
Your agent will be able to access all your financial assets and could be responsible for paying your bills, making deposits, managing your investments, filing taxes or even selling assets such as your car or home.
Choosing the right person is critical. Trustworthiness is paramount, and you should select someone you know will follow your wishes and act in your best interest.
Beyond trustworthiness, you should consider the person’s financial aptitude, organizational skills, communication skills, assertiveness and ability to maintain calm under pressure.
Make sure your POA document spells out exactly what your agent is allowed to do. Not all POAs are the same, and you can decide which powers to give your agent.
For instance, you may decide to give your agent the ability to implement certain aspects of your estate plan, such as making gifts to beneficiaries.
And many people overlook giving their agent authority over digital assets — such as email accounts, cloud storage and cryptocurrency wallets. Without specific language, even a well-drafted POA might not grant access.
Your document should also spell out when your agent’s power begins. You can choose whether it becomes effective immediately when you sign the document or “springs into power” when you are deemed incapacitated.
Just as important is keeping your POA up to date. An outdated or overly vague POA can lead to confusion or legal challenges.
Why a health care power of attorney is just as important
You should also have a separate HCPOA, which gives someone the legal authority to make medical decisions if you are ill or incapacitated.
A typical HCPOA will allow your agent to authorize medical or surgical procedures, coordinate prescription medications and treatment plans, authorize admission to a medical, residential or other facility and make other general health care decisions for you.
Simplicity is key. We recommend naming one agent — not multiple — so doctors aren’t forced to seek consensus in an emergency. And don’t just draft the document. Talk with your chosen agent about your wishes so they can make informed decisions on your behalf.
You can also include or supplement the HCPOA with a living will, which lays out your preferences for end-of-life care, such as whether you want life support or palliative care.
In your HCPOA or your living will, you will want to provide clear direction regarding organ donation and bodily disposition directions (meaning if you want to be buried, cremated, etc.).
Additional tips to keep in mind
Agents don’t have to match. The person you choose for financial matters doesn’t have to be the same one you appoint for medical decisions. People have different skills.
Your agent doesn’t have to be a family member, even though many people name their spouse and/or children to act as agent(s), sometimes in different capacities.
Co-agents can cause complications. If you name more than one agent, be explicit about how decisions should be made — and always name successor agents in case your first choice is unavailable.
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POA and HCPOA laws can vary significantly by state. A document that works in one state may not be valid — or may need to be updated — if you move or spend significant time in another state.
Your documents need to be accessible. Even the most carefully prepared documents are useless if no one can find them when needed.
It is important that agents have copies of your documents, and you may consider providing copies to your medical professionals as well. (Some states have online registries where you can store a copy of your documents so they are accessible to you or your agent even if you’re away from home.)
Periodic legal review is important. Laws and best practices evolve, making a document drafted five or 10 years ago potentially outdated or noncompliant.
In addition to the annual personal review, we recommend having your legal documents professionally reviewed every few years or whenever a major legal change occurs.
These documents aren’t just about protecting your assets and health — they’re about reducing uncertainty for your loved ones during what may be a very difficult time. Keep them current, clear and aligned with your intentions.
Beyond just having the documents ready, be sure to communicate clearly in advance with your agents so they have all the information they need to make sound decisions that are aligned with your wishes.
In next month’s article, we will talk about reviewing your will, trusts and related documents so they reflect your current wishes and any changes in your circumstances.
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