Estate planning, if you really boil it down, is simply the process of determining, in advance, “what should happen” if a person is no longer able to make decisions for themselves. The reason for not being able to make decisions could be due to either death or incapacity. In both circumstances, estate planning puts a person’s decisions in writing, in advance, so that the person’s friends and family members know who should make decisions for them (if they can’t make decisions on their own), and what should happen to their assets when they die.
For all of my friends, family, and clients, whether they have a relatively low net worth or a relatively high net worth, I recommend that everyone should have a Durable Power of Attorney for Finances, and a Health Care Directive.
A Durable Power of Attorney for finances allows your named “agent” (also called an “Attorney in Fact”) to make financial decisions for you in the event that you can’t make financial decisions on your own. For example, if you are in a car accident, and you wind up in the hospital, your agent under your Power of Attorney could pay your bills for you until you are able to return home and once again attend to matters on your own.
For many people, their primary “attorney in fact,” for their durable power of attorney for finances, will be their spouse. Many people ask me, when we are discussing estate planning, “Well, can’t my spouse just sign checks for me, anyway?” The answer is, “Not necessarily.”
If you and your spouse have joint bank accounts, then yes, either one of you can probably sign checks or make transactions from those accounts. Similarly, if you and your spouse list each other as “co-signers” on your accounts (even if they are truly the accounts of just one of you), then either one of you probably should be able to pay the bills from an account on which you are a “co-signer.”
If, however, you and your spouse maintain separate bank accounts, then you will not be able to access each other’s separate, individually-titled accounts in an emergency without a power of attorney.
There are basically two types of Power of Attorney for finances. There is a statutory form (codified in the Minnesota Statutes), and there is a “common law” Power of Attorney. Either form “works” as a power of attorney, but the idea behind the statutory form is that it should be accepted at face value by financial institutions (such as banks).
The Power of Attorney form that comes from the Minnesota Statutes is intended to be usable by anyone, but very few changes can be made to the form (aside from entering names and addresses, and checking certain boxes) without losing its statutory protections. The “common law” power of attorney, on the other hand, can be either formal or informal (meaning, it can either be in writing or not in writing), but if you want a “common law” power of attorney to be recognized as “valid” by financial institutions, it should still be in writing. “Common law” powers of attorney are often written out in a more “narrative” form, and as such they can be specifically tailored to give your named “agent” powers that are as broad, or as limited, as you wish.
For example, you could use a “common law” power of attorney to allow your named agent to have the limited power to sign a deed for the sale of your house if you will be out of town on the date of the closing of the sale.
Health Care Directives are a similar concept. A Health Care Directive is a combination of a “health care power of attorney” and a “living will.” In some States, health care powers of attorney and living wills are separate documents, but in Minnesota, in modern times, we combine both concepts into a single “Health Care Directive.”
There are many, many different forms of Health Care Directives out there in the world. You can ask your doctor, your health insurance company, or your attorney, for samples, and you can decide for yourself which form works best for you.
With Health Care Directives, too, my clients often ask me, “Can’t my spouse just tell the doctors what to do, if I can’t tell them myself?” The answer is, “Yes, but what if something happens to BOTH you and your spouse?” If your spouse is incapacitated and you have children, then—without a health care directive—your children would all have equal priority to make health care decisions for you. So, a problem can arise if you don’t have a Health Care Directive and your children do not agree on the kind of health care you should receive. In situations where the family can’t agree on your care, and multiple people have equal priority as decision makers, the doctors could be forced to throw up their hands and tell everyone to go to Court and get a judicial determination of “who is in charge.”
That’s the biggest benefit to having a Power of Attorney for Finances, and a Health Care Directive. Those two documents give your named agents the exact same powers as a court-appointed Conservator of your Estate (for the Power of Attorney for Finances), or a court-appointed Guardian of your person (for the Health Care Directive). If you have a Power of Attorney for Finances, and a Health Care Directive, it should not be necessary for your family to go to Court to figure out who is allowed to make decisions for you (and what decisions should be made) if you are unable to make decisions on your own.
Health Care Directives and Powers of Attorney for finances can be prepared on your own, but people should not be scared to talk to an attorney about them. These are straightforward documents, and it does not take a lot of time or work to personalize them to you. If you take a little time to put a Health Care Directive, and a Power of Attorney for finances, into effect, you can potentially save your family a lot of time, a lot of trouble, and a lot of money, in the long run.
J. Steve Nys is an attorney at the Fryberger Law Firm in Duluth, practicing in the areas of estate planning, trust and probate, business succession planning, income and transfer tax planning, real estate and general corporate/business law. You can reach him in the firm’s Duluth office at 218-722-0861.