As you prepare your estate plans, you may find yourself confused by all the legal jargon. What is the difference between a will and a living will? Do you have to establish a trust? What does power of attorney mean?
The last question is important to review because it involves people making choices on your behalf, so in order to choose the right proxies, you must first understand the roles they will play.
What is power of attorney?
By itself, the term refers to someone (an agent) who has the legal capacity to make decisions in your (the principal) behalf according to your estate plans and best interest. You must make the appointment in its own document, separate from your will. You can choose to have the person begin the role immediately, at a future date or once you suffer mental incapacitation. The duration may last temporarily or until your death.
What are the types of power of attorney?
What decisions the agent can make for you depends on what type of power you grant. Options include:
- Financial: A financial power of attorney handles your assets, expenses, taxes and even businesses you own. The agent can also make investments, apply for government benefits and file lawsuits for you.
- Medical: A medical power of attorney decides on your health care when you are unable to do so. It differs from a living will in that it covers more than just end-of-life matters. You may have both documents as part of your estate plans.
- Durable: Durable power of attorney means the appointment (for financial) will continue if you suffer mental incapacitation, and it prevents the need for establishing guardianship later on.
You can choose one person to have both powers of attorney or name two people to fill each position. Duties an agent cannot fulfill for you include voting and making or changing your will. Some responsibilities, such as gifting your property, you must explicitly mention in the document for the agent to have the legal power to perform them.