Powers of attorney are relatively familiar legal documents for many people. Still, there are a lot of misconceptions about what these documents do and when and why they are necessary. In this article, I will discuss the who, what, why, where and when on powers of attorney.
The parties to a power of attorney are the principal and the agent. The principal is the person who signs the document and grants the power to act to the agent. The agent is the party who receives the ability to act on behalf of the principal through the execution of the document. Commonly, you may hear people refer to the agent as the “power of attorney.”
Powers of attorney are documents that we sign in order to allow other select people or organizations to act on our behalf. The term power of attorney refers to the document itself – not the person who is able to act on behalf of the principal.
There a few different types of powers of attorney, but the two that you are most likely to encounter are financial and health care powers of attorney. At our law office, we draft separate powers of attorney so that the client signs one for financial decision making and another for health care decision making. This way, the client has a document that only pertains to health care decision making to give to their healthcare provider and another that only covers financial decision making for their financial institution.
Powers of attorney are useful whenever you wish to allow a third party to make financial or health care decisions on your behalf. In some cases, you may just want someone else to be able to handle your affairs while you are absent or you may just want the flexibility of having another person you trust who can sign documents or handle banking responsibilities for you.
In most cases, however, clients prepare powers of attorney because they are planning for potential incapacity in the future. In other words, they want to make sure that someone can make financial and health care decisions for them in the event they are unable to do so because of an illness or mental incapacity.
Because powers of attorney can allow the agent to make decisions for the principal even after they become incapacitated without court approval, they are an absolutely vital component to a complete estate plan. Those who choose not to prepare powers of attorney run the risk of their families or friends having to petition a court for guardianship. Guardianships generally cost much more than preparation of powers of attorney and open up the door to arguments among family and friends and even the possibility of an unforeseeable court decision on who the guardian will be.
Residents of Pennsylvania would be well served by having their powers of attorney prepared by an attorney and would likely be even better off having them prepared by an estate planning and/or elder law attorney.
Pennsylvania law has undergone significant changes in recent years that have made the drafting and execution of financial powers of attorney more in depth and complicated. It is important to remember that powers of attorney can only be signed by individuals who possess the requisite mental competency. Since powers of attorney are typically not utilized until the principal needs assistance, it is risky to rely on a home-made document in hopes it will be adequate because once the discovery of inadequacy is made it may be too late to sign another document.
If you are over the age of eighteen (18) and have not executed powers of attorney, then the time to prepare these documents is now. Powers of attorney are a vital part of a complete estate plan, regardless of age.
If you have already executed powers of attorney but you haven’t reviewed them in a while, now is a good time to do so. If the documents were executed more than five years ago, it’s time to review them with an estate planning attorney. While the law has recently changed in Pennsylvania, documents executed prior to the changes are grandfathered and therefore valid as long as they were executed in accordance with the law at that time. The older you are and the older your documents are, however, the more likely you should have them updated.
If you need to put together an estate plan or would like a review of your documents, we offer a free one-hour consultation at the Law Offices of Lutz & Petty and we would be happy to meet with you. You can schedule a consultation with us by calling (570) 218-4888 or by using the “Schedule a Consultation” feature at the top of our webpage.