Estate planning is often thought of as simply putting together a will or a trust agreement. The fact is, an estate plan encompasses much more, including your financial, tax, medical, and business planning in the event that you are unable to make decisions on your own.
During the estate planning process, you'll need to be ready to make critical decisions that may have a direct impact on your loved ones and their families. Decisions that can include addressing some tough questions such as:
- Who will make critical decisions about your long-term care and health care needs if you become unable to decide for yourself?
- Who do you trust to make difficult end-of-life decisions according to your wishes?
- Who will manage your assets for your benefit during your lifetime if you can no longer manage them on your own?
- Who do you trust to manage and distribute your assets according to the instructions in your will after you die?
Part of an estate plan is creating a power of attorney (POA) document. A POA is a document that is part of your estate plan and allows you to appoint a person or organization to manage your affairs on your behalf.
However, while there are different types of POA documents, each is basically giving your attorney-in-fact or agent (the individual who will be making decisions on your behalf), a different level of control. Three of the most common types of POAs used in estate planning are general, healthcare, and durable.
A general Power of Attorney
General POA gives broad powers to a person or organization to act on your behalf. These powers include handling financial and business transactions such as paying everyday expenses, handling your banking, making investment decisions, settling claims, buying life insurance, and running your business. A general POA is often included as part of an estate plan so that you can select who you want to manage your financial matters when you can't.
A healthcare Power of Attorney
A healthcare POA grants someone of your choosing the authority to make medical decisions for you in the event you become incapacitated, mentally ill, or are unconscious. In many states, a healthcare POA will also permit you to include your preference regarding end-of-life decisions such as being kept on life support. A living will is often used in conjunction with a healthcare POA, as part of your advanced healthcare directive.
A durable Power of Attorney
Let's say you were traveling out of the country, were involved in an accident, and become mentally incompetent while your agent (the person you appointed to handle your finances while you were away) was managing your business as part of your general POA. While the general POA becomes invalid in this situation, a durable POA allows your agent(s) the authority to continue acting on your behalf if you become incapacitated. One of the most common uses for a durable POA is making healthcare decisions, allowing your agent to act for you by carrying out the instructions in your living will if you were to become incapacitated.