Most people know what a power of attorney (POA) is, and most people understand that having one is important. It may not come as a surprise, however, that most people don’t have one. Well, everyone needs one. I am going to share a true story to help make that point. Before I get into the story, here is a brief review of the two major types of POA’s and what they do for you.
Powers of attorney are designed to give another person (the “agent”) legal authority (or power) to make important decisions when you (the “principal”) cannot. In the context of long-term planning, there are generally two types of POA’s – the business (or financial) power of attorney and the medical power of attorney. Both need to be in writing and executed (oftentimes notarized and witnessed) in accordance with the laws of your state, and you should consult a lawyer to help you.
A business POA gives another person the legal authority to make business or financial decisions for you when you have become incapacitated and rendered incapable of making such decisions on your own. For example, you can be rendered incapable of making these decisions after being diagnosed with a debilitating disease or having been seriously injured in a car accident. A general POA gives the legal authority to your agent to make financial or business decisions on your behalf – handle bank accounts, insurance policies, deal with real estate, handle stocks, bonds, mutual funds, etc. In your written POA, you can limit the authority of your agent should you choose to do so, or your agent’s authority can be “general” and limited only as required by law.
A medical POA is a legal document that designates a person — referred to as your “health care agent” or “proxy” — to make medical decisions for you in the event that you are unable to do so. A medical POA is sometimes called a “durable power of attorney for health care.” This POA becomes effective once a treating doctor declares that you lack the capacity to make treatment decisions on your own. The medical POA does not give your agent the right to make financial decisions on your behalf. (That is handled separately by the business POA discussed above; although, the agent can be the same person if that is whom you have chosen to make all of these decisions for you.)
Now, as promised, here is the story. A very nice couple had been happily married for 53 years. When both husband and wife were in the mid-seventies, the husband began to grow increasing agitated and forgetful. One day, things at home escalated and the husband became violent. The wife called for help, and her husband was removed from the situation. Soon thereafter, the husband was diagnosed with moderate dementia, including Alzheimer’s disease. Due to his condition, a doctor declared him unfit to make financial and treatment decisions on his own, and he was placed in a care facility.
For the entirety of their marriage, the wife had handled all of the finances. As usual, their home was titled jointly in both of their names, and the husband had life insurance policies and some other assets titled in his name only. As luck would have it, prior to the episode at home that evening, the couple was scheduled to close later that same week on a real estate transaction where they planned to sell some of their jointly-titled real estate to a family member so that family member could build a home. Neither husband nor wife had a business or medical POA. When the real estate lawyers learned of the husband’s diagnosis, they requested a copy of the husband’s POA so they could proceed to closing. Because the husband did not have one, the closing was cancelled and the transaction could not go through. More importantly, the couple was on a fixed income, and credit card bills began to increase significantly to pay for medical expenses, leaving the wife unable to pay the bills. Although the couple had a good amount of equity in their long-time family home, the wife could not refinance the property on her own, because the house was titled in both hers and her husband’s name. If she could refinance the home, she could have paid off her high interest rate credit card debt, perhaps saving her a $1,000 per month and allowing her to pay her bills. Contrary to many people’s belief, a spouse does not automatically get the legal authority to act on the other spouse’s behalf when the other spouse becomes incapacitated.
What could she do? There was no power of attorney. Now that the husband has been declared incapacitated, it was too late to execute one; the husband lacked the legal capacity to do so. Without a power of attorney for her husband, the wife could not sell the real estate to her family member. She could not refinance the family home to pay down credit cards. She could not access the cash value locked up in her husband’s life insurance policy. Her only option at that point was to petition the Circuit Court where she lived and ask the Court to appoint her as a conservator and guardian of her incapacitated husband. Fortunately, Virginia law provides for such a procedure. Unfortunately, this is an involved, complex, and expensive process, taking about two months to complete and costing the wife approximately $3,000 in legal fees. Had the husband had a valid business power of attorney, which would have only cost approximately $100 to prepare, the wife could have signed legal documents on his behalf and avoided many of these problems. Ben Franklin’s old expression, “An ounce of prevention is worth a pound of cure,” is quite appropriate here.
This is just one example of how important it is to have appropriate powers of attorney in place. There are surely countless other stories similar to this one occurring every day. Don’t put it off, contact a good attorney and get started on drafting powers of attorney today.