Health care and financial powers of attorney are critical components of an effective estate plan. Indeed, while much of your estate plan focuses on actions that take place after your death, it’s equally important to have a plan for making critical financial or medical decisions if you’re unable to make them for yourself.
Health care powers of attorney, which sometimes go by other names, appoint a trusted person to make medical decisions on your behalf in the event an illness or injury renders you unconscious or otherwise incapacitated. Financial powers of attorney appoint someone to make financial decisions or execute transactions on your behalf under certain circumstances. For example, a power of attorney might authorize your agent to handle your affairs while you’re out of the country or, in the case of a “durable” power of attorney, incapacitated.
After you’ve executed powers of attorney, it’s important to review them periodically — at least every five years and preferably more frequently — and consider executing new ones. There are several reasons to do this:
- Your wishes may have changed.
- The agent you designated to act on your behalf may have died or otherwise become unavailable, or may no longer be appropriate.
- If you designated your spouse as your agent and later divorced, you probably want to designate someone else.
- If you’ve since moved to another state, your powers of attorney may no longer work the way you intended. Certain terms have different meanings in different states, and states don’t all have the same procedural requirements. Some states, for example, require durable powers of attorney to be filed with the local county recorder or some other government agency.
Even if nothing has changed since you signed your powers of attorney, it’s a good idea to sign new documents every few years. Because of liability concerns, some financial institutions and health care providers may be reluctant to honor powers of attorney that are more than a few years old.