The 8 Biggest Mistakes People Make With A Power Of Attorney

Creating a POA is one of the most important documents you’ll ever do, but estate lawyers say people often make these common errors.

A power of attorney is one of the most important legal documents you can ever create. Depending on if it’s for health care or for your finances, it can direct how you, the principal, want your agent to act on your behalf when you cannot.

“A power of attorney enables you to proactively plan for unexpected events, such as illness, injury or cognitive decline, which might render you incapable of managing your own affairs,” said David Watson, an estate planning attorney based in Mequon, Wisconsin. “Without it, your loved ones may encounter delays and legal complications when trying to handle your matters.”

And unlike a will, “these documents actually matter when you’re alive,” said Alice Choi, an estate planning attorney at Novick & Associates in New York City and Huntington, New York. “It affects your money, your actual quality of life and everything.”

That’s why not having one at all is the biggest mistake, because the alternative can be expensive, prolonged litigation. If you do not have a power of attorney, your loved ones will have “to commence a guardianship proceeding and go to court to get that authority…when you could have simply done that with a power of attorney,” Choi said.

Beyond the mistake of not having one to begin with, HuffPost asked estate lawyers about the worst mistakes they commonly see people do with powers of attorney that they want you to avoid. Here’s what they shared:

1. You think it’s only for elderly people and wait too long to do it.

If you procrastinate until your cognitive or physical health starts to decline, it will make a power of attorney more difficult to obtain.

“Waiting too long may result in the principal no longer having the capacity to sign the document,” Watson said. “Rushed power of attorney documents can also raise suspicions of undue influence.”

“Even young people should have a power of attorney, especially if you have children,” Choi said. “You just never know what’s going to happen.”

2. You only get one POA for your health care or finances, but not both types.

Eido Walny, founder of Walny Legal Group, an estate planning and asset protection law firm based in Wisconsin, said that “everyone needs two powers of attorney: one for health care and one for financial.”

“These are two fundamentally different powers of attorney. One deals with a myriad of financial-related issues, while the other deals with end-of-life issues,” he said. “Having one will not help at all with the issues of the other.”

3. You misunderstand the difference between a springing power or one that goes into immediate effect.

It’s crucial to understand the difference between a POA that has “springing power” or one that takes effect immediately upon signing.

“Health care powers of attorney typically ‘spring’ into action only when the principal becomes incapacitated. In contrast, financial powers of attorney can either ‘spring’ into effect upon incapacity or be effective upon signing, granting immediate authority,” Watson said. “Financial institutions may challenge the springing power, insisting on medical proof of incapacity before recognizing the agent’s authority. In many cases, opting for immediate effectiveness can be more practical.”

Depending on what life stage you’re at, you may want one type of POA over the other.

Choi said that in the cases of younger people in their 30s and 40s, she would typically recommend a springing power where it “will become effective only when your doctor says, ‘Oh, OK, she doesn’t have capacity to make these decisions.’ And by attaching that letter to the power of attorney, it becomes effective.”

Meanwhile for elderly people who just need help paying bills and accounts online, a springing power of attorney could be “another hurdle” because “the doctors can’t maybe say you’re incapacitated, because you have capacity,” Choi said.

4. You do it once and then don’t ever update it.

Carmen Rosas, an estate planning attorney based in San Mateo, California, said people can approach their power of attorney document with a “set it and forget it” mentality out of discomfort.

“I think a lot of people, even if it’s subconsciously, don’t want to think about not ever being in control of their lives, or their bodies or their money,” she said.

But this is a legal document you want to review regularly, because it can give your agent a lot of control that you may no longer want to grant if that person is now your ex or estranged child.

“People’s relationships change,” Choi said. “It should be updated when there’s a major life event, when you get a divorce, you get married, someone dies.”

Choi said people often forget what’s in their POA and it’s why she recommends reviewing it every five years. Rosas also recommends updating it every five years, noting that after 10 years, some banks may question and challenge why there was not a new one done.

If you ever have a medical emergency, your loved ones will need a power of attorney document to carry out your wishes.
THE GOOD BRIGADE VIA GETTY IMAGES/If you ever have a medical emergency, your loved ones will need a power of attorney document to carry out your wishes.

5. You choose the wrong agent to carry out your wishes.

Do not make the choice of your agent lightly. Walny said that, “People rely too much on familial norms at the expense of a good agent decision,” and that it’s more important to pick someone you know would be competent “than to try to appease the people you think expect to be named.”

“Not that you can’t trust your children, but you do have to think about it,” Choi said. “Everybody thinks these things would never happen to [them]. ‘My child is not like that.’ But you know, if that’s the case, then I wouldn’t have a job.”

“If your spouse is getting elderly, has trouble managing money, or any other issues, they may not be a good candidate to make any decisions for you,” Walny said. “If you’re in a second marriage and your spouse is not your trustee, it’s probably not a great idea to make them a durable agent when they can redirect certain assets away from your trust.”

6. You choose the wrong witness.

Depending on your state’s laws, a power of attorney document may require witnesses or notarization for validity.

“Overlooking these essential requirements can render the document null and void,” Watson said. “For example, it’s crucial to ensure that witnesses on a health care power of attorney are not related to the principal by blood, marriage, adoption, or financially responsible for the principal’s health care.”

In this way, choosing the wrong witness can potentially void your power of attorney.

“During the COVID pandemic, I encountered a situation where a health care power of attorney, although seemingly executed correctly, was declared invalid when presented to a health care provider because one of the witnesses, though bearing a different last name, was related to the principal,” Watson said. “Fortunately, we were able to rectify this with a new document and appropriate witnesses.”

“You always want someone who’s not related or who has no potential interest,” Rosas said. She said if she was picking a witness,“it would be a neighbor, or it’d be like a family friend, someone who if I died today, would have no potential ― even if it’s remote ― possibility of inheriting or getting access to my stuff.”

7. You name multiple agents to act at once, or you don’t have an alternate.

Estate lawyers advise against naming co-agents.

“This is a terrible decision we often see: [The] client doesn’t want to alienate any of their two or three kids so the kids are all [named] as co-agents. This is a great way to end up in court asking for a judge’s help,” Walny said. “When you make a committee, that often leads to confusion, delay, mistakes and other issues. Don’t ever name co-agents.”

But do have alternates, so if the primary person you appoint is not available, you can make decisions without delay ― especially in the event of medical emergencies.

If the primary person “went on a trip to Cambodia and you need to make this decision whether to have the surgery or not right away, then you go to the next one,” Choi said as an example. “I think for health care proxies, or medical power of attorneys, it’s important to have multiple alternate people.”

Having a successor agent is a good idea, too. Rosas said that a lot of times married couples will name only each other as the agent, and that can lead to problems.

“If they’re in a car accident together, and they’re both incapacitated at the same time, but they’ve named each other and they haven’t named a secondary or a successor agent, they end up back in the same situation as if they hadn’t created a power of attorney,” she said.

8. You’re not specific enough in your POA.

Don’t assume your wishes will be carried out unless you spell it out. If you’re not specific enough about what affairs your agent should handle and under what conditions, it can lead to headaches later on.

“If you grant too much power, where you’re like, ‘OK, this person can just do whatever they want,’ without any specific instructions or explanation, that’s a lot of times where people can kind of get screwed out of their properties,” Rosas said. “Because with powers of attorney, you can have the right to sell.”

Know that you can and should get detailed with your conditions. “You can say things like, ‘Well, they’re able to sell [property] but not until my youngest child reaches the age of 25,’” Rosas said.

Choi said one big area of estate litigation is around the monetary gifts agents can have the power to give themselves.

“If you’re silent on gifts, an agent [could take] $5,000, $10,000 from the father’s account, and just use it and say, ‘It’s a gift, he gave it to me,’” Choi said. “If it’s silent on it, then it’s going to be litigated. And when something’s litigated, I feel like everybody loses.”

“The people and entities relying on POAs demand specificity. If you want Medicaid planning, that better be in the document,” Walny said. “If you want broad or narrow gifting powers, that better be in the document. If you want your agent to be able to access intangible assets like your voicemails, online photos or emails, that better be in the document.”

Ultimately, creating a power of attorney document will take careful research and potentially awkward conversations, but it’s worth it for the emotional, legal and financial costs you could be sparing yourself and your loved ones.

“Let’s say I’m incapacitated right now today, and my husband doesn’t have power of attorney,” Choi said as an example. “Someone has to pay my credit card bills. Someone has to file my taxes, someone has to pay the hospital for my medical care. All those things actually can’t be done without a power of attorney.”

Credit: Source link