Let’s talk about the power of attorney documents for a little bit today. Now, powers of attorney are not the most complex documents when it comes to estate planning. But I think they are some of the most important documents.
When it comes to the power of attorney documents, the first thing you should know is there are two kinds – there’s a health care power of attorney and financial power of attorney.
The financial power of attorney is often called the property power of attorney, but I’ve learned to call it a financial power attorney because some people when they hear the word “property” think it only applies to real estate.
You’ll have to excuse me when I say financial power attorney throughout this. It’s a habit I’ve developed over the years and I’m not going to break it now.
Let’s begin with the health care power of attorney. There are a few documents that people refer to when the terms health care power of attorney or healthcare directive comes up. The documents that orbit these terms include the health care power of attorney, the living will, and a Five Wishes document.
I happen to draft my documents so that the health care power of attorney contains the ideas of all of them, but let’s break them each down for a second. Traditionally a Living Will states a person’s end-of-life wishes.
Think about end-of-life decision-making and life support preferences. That’s what a living will traditionally handle, but I like those choices to appear in the health care power of attorney.
Speaking of the health care power of attorney, this is the document where you would traditionally name a trusted and reliable loved one to make health care choices for you if you can’t make them for yourself.
Then with something like the Five Wishes document, this is where you would get specific for what your beliefs and wishes are for the end of life and final arrangements.
The reason I like to get all of these decisions recorded in one document is so my clients’ families and medical teams have one place to look for one source of information so there’s no confusion at the end of somebody’s life or in an emergency who has decision making power, what that power extends to, what that power doesn’t extend to, and what choices need to be made.
I have concerns over having multiple documents for someone to flip between and how a person who is under pressure to make very important and personal decisions for a loved one might deal with seemingly minor inconsistencies between the language in each document.
When it comes to health care directives, I believe they all need to consider dementia. Severe cognitive impairment needs to be addressed in your health care directives because without that you’re really leaving a huge loophole in your planning.
Do you have anyone with authority and knowledge to implement your values when you’re a decade into an Alzheimer’s diagnosis and you get something like pneumonia that could be easily curable with antibiotics?
Would you still want those antibiotics or do you want pneumonia, as I heard one family tell me, to be the blessing that they were hoping for? That is a major choice to make and there are always strong opinions around making that choice, but whatever your preferences are, they need to be written down in your health care power of attorney.
Of course, you can rely on the doctors, the health care providers, and your families all agreeing on that decision and maybe it gets done, but I know a lot of clients who feel a lot better having their wishes written down.
The other power of attorney document is a financial power of attorney. This document can appear pretty standard. Most power of attorney for property documents in Illinois will look the same on the first page, in fact.
That is because the most common financial power of attorney is Illinois’s statutory power of attorney. A common question around the financial power of attorney is, “I’ve heard about a durable power of attorney, what does that mean?” A durable power of attorney is effective right away and extends for the rest of your life.
It doesn’t wait for incapacity to be effective and doesn’t expire at a certain date. It’s just…durable. It lasts! Simple as that. I make almost all of my power of attorney documents durable.
What I also do with the Illinois Statutory form is take the language and I add a few things to it. It is very interesting to me that most of my clients come into my office with pre-existing estate plans.
There are a couple of things that I’ve learned because of that. One of those is that most people’s financial power of attorney’s strength or weakness is revealed by Paragraph 3:
Added Powers. This is the paragraph where you are allowed to add powers to your power of attorney to give your agent explicit authority to do things for you if you’re not able to act for yourself.
To explain the differences between different Paragraphs 3 I want to first take you to former Ford CEO Alan Mullaly’s famed Business Plan Review System, or BPR.
Mullaly took over Ford at a very tenuous time and went about reviewing each and every part of the automotive giant. His BPR system color-coded the status of various Ford systems and divisions into Red, Yellow, and Green statuses.
Red meant something was failing, yellow was uncertain teetering toward failure, and green was good. I find my mind categorizing the three main versions of Paragraph 3 of people’s financial powers of attorneys into those categories.
In the red category are the blank Paragraph 3s. These documents have simply been downloaded off the internet and little thought was put into their contents other than, most likely, two names, a signature, a notary, and a witness. I’m sorry to say that I consider these documents to be thoughtless, empty documents.
Perhaps they will fill your needs if everything goes perfectly for you in your life, but, like the famous one-word reply to a surrender demand to a general in order to spare his city if it is conquered, “If.”
In the yellow category, which is better than red but still leaves something to be desired are Paragraph 3s that list out one or two added powers, most commonly about gifting up to the annual gifting exclusion amount?
These fall short not only because there are a lot more line items that need to be considered, but also because the item itself falls short if you need to gift part of a house you own to your spouse if you have long-term care concerns. If half of your house is worth more than about $15,000 and you get sick, these yellow Paragraph 3s will let you down.
The gree Paragraph 3s list out many items where courts, financial institutions, or other government entities have decreed the standard power of attorney for property to be lacking.
For example, my power of attorney’s Paragraph 3 lists more than one or two added powers, it lists 20 or so added powers so that my client will never be left out in a lurch because of something I could have controlled. I never want my client to have Fidelity tell them,” You know what? This power of attorney allows you to update your sick husband’s beneficiary on his 401(K).”
The people my client’s trust with their financial decision-making will be able to sign a very specific real estate transfer document, overcome a bank’s strict policy on safe deposit transactions, and make decisions about health care facilities because I take the time to print a few more pages of paper.
My clients may pay me a touch more than you paid your attorney, but my clients get the value out of what they pay me for. So when you’re looking at your financial power of attorney if you’re asking yourself, “Is this good enough, is going to cover me?”
flip to Paragraph 3. If Paragraph 3 is red or yellow and you are in Illinois, you need to come to see me because my clients are getting something that you are not and I love to talk to you about it.
Sorry for the personal promotion there, but this is something I feel strongly about. And frankly, I think it is shame that more attorneys do not take the time to seriously consider their financial power of attorney drafting decisions.