This article is the fourth in a series of nine articles explaining the Eight Goals of a Good Estate Plan. In this Article we will discuss using Powers of Attorney to avoid the necessity of lengthy and costly guardianship proceedings if you become mentally incompetent.
If you become mentally incompetent, whether through injury, disease, or simply old age, your spouse or next of kin cannot simply take over the management of your financial affairs and major life decisions. If your loved one would like to sell your house or access your accounts for your benefit, or check you into a long-term care facility, he or she will not be able to do so unless either:
If you do not have powers of attorney in place when you become mentally incompetent, a guardianship proceeding is the only method by which your loved ones will be able to take the actions necessary for your care. A guardianship proceeding is a court case by which the court decides who will be appointed as your legal guardian. After your prospective guardian submits a petition to be named guardian, along with several accompanying documents prepared by an attorney, the court will hold a formal hearing (often after several court dates) to determine who will be your legal guardian. The end result of this hearing is a court order appointing your guardian.
We want to avoid guardianship for three reasons:
Guardianship proceedings can be avoided by executing a Power of Attorney for Property and a Health Care Power of Attorney prior to becoming mentally incompetent. Note: Once you have become mentally incompetent, it is too late to execute these documents.
A Power of Attorney for Property names an agent and a successor agent to make legal and financial transactions on your behalf if you are no longer mentally competent to do so. Upon receiving a doctor’s certification that you are mentally incompetent. The agent named in your Power of Attorney for Property will be able to undertake these transactions and sign on your behalf by showing the certification and a copy of the Power of Attorney. Your successor agent will be able to act for you if your initial agent is unwilling or unable to do so, either because he or she too is mentally incompetent, or because he or she predeceased you. Therefore, because your agent and successor agent have been granted authority to act by your Power of Attorney, they will not be required to institute a guardianship proceeding in order to undertake these financial and legal transactions.
A Health Care Power of Attorney names (1) an agent and a successor agent to make healthcare decisions on your behalf ; and (2) a guardian of your person to make major life decisions for you should you not be mentally capable to do so. If you are unconscious or mentally incompetent, your healthcare agent will make decisions such as whether to undertake a risky surgery or whether to terminate life sustaining treatment in the event of a coma. The guardian of your person named in your Healthcare Power of Attorney will make decisions such as where you will live and whether you will be checked into a long-term care facility, as well as any other life decisions that do not fall within the financial sphere. In the absence of a Health Care Power of Attorney, a guardianship proceeding would be necessary in order to allow your spouse or next of kin to make such life decisions on your behalf.
In addition to guardianship avoidance, the Healthcare Power of Attorney is beneficial because having a decision-maker named in advance avoids the possibllity of costly and painful litigation between family members over your medical and life decisions.
In a previous article, we discussed the use of revocable living trusts to avoid probate. An ancillary benefit of revocable living trusts is that, if you become mentally incompetent, the successor trustee that you name in your trust will be able to manage trust assets for your benefit without the necessity of a guardianship proceeding. The distinction between the powers granted to the agent in your Power of Attorney for Property and the powers granted to the trustee of your trust is that the trustee can only transact business with respect to trust assets, while the agent named in your Power of Attorney can make all financial and legal decisions and transactions on your behalf.
Healthcare and Property Powers of Attorney tend to be extremely affordable. I consider these documents to have the most “bang for your buck” relative to other estate planning documents. Spending a small amount of time and money to plan ahead of time for your mental incompetency can save your loved ones massive amounts of time and money when and if such mental incompetency occurs.
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