Planning for Life

If something unexpected happened tomorrow, who would make decisions for you? With two documents, you can choose who will make decisions for you and guide those decisions. Besides a will, the remaining documents comprising a basic estate plan are a financial power of attorney and a health care power of attorney/living will, also known as an advance healthcare directive. These documents allow you to name a person or entity to take actions on your behalf when needed and allow you to make decisions about your future. 

Financial Power of Attorney

A financial power of attorney allows you to choose someone (your “Agent”) to engage in financial transactions on your behalf. A financial power of attorney can be either effective immediately or it could be “springing,” meaning it could only be effective if and when you become incapacitated. The powers contained within this document can be quite broad, allowing your chosen Agent to engage in a wide range of transactions, which could include banking, real estate transactions, borrowing, gifting, power over digital assets, and much more. A financial power of attorney can also be useful if you need assistance with some financial matters as you age or if you travel frequently and want to allow a spouse or other trusted individual to act on your behalf when you are unable to do so. Your financial power of attorney will be effective until revoked or upon your death.

Health Care Power of Attorney/Living Will

This document could be a health care power of attorney, a living will, or a single document containing both, known as an advance healthcare directive. A health care power of attorney appoints your chosen Agent to make medical and end-of-life decisions for you when you are unable to do so. Similarly, living wills give specific instructions for making medical decisions regarding end-of-life care and provide your preferences regarding certain events if you have an end-stage condition or are permanently unconscious without a realistic chance of recovery. 

Choosing an Agent

In determining an Agent under a financial power of attorney, you will want to consider someone who you trust and who, ideally, is responsible, organized, understands financial matters, is a good communicator, lives close to the assets they will be managing, and is willing to consult experts when needed. If you cannot identify such a person, you may even consider naming an entity (such as a bank or trust company) as Agent. You will also want to strongly consider naming a successor Agent or Agents who could succeed your primary choices in the event that the person is unable or unwilling to serve when the time comes.

Similarly, for an agent under a health care power of attorney, in addition to the types of factors above, you should consider someone who is reachable, lives nearby, can handle pressure, can navigate the interpersonal relationships with your family well, and who understands and will honor your preferences regarding health care. You will also want to strongly consider naming a successor Agent or Agents who could succeed your primary choices in the event that the person is unable or unwilling to serve when the time comes.

Ideally, you will choose one individual in each role with a backup or several backups. While it is possible to name multiple individuals to serve at once as co-Agents and to choose whether such co-Agents would have to act together unanimously, by majority, or could each act independently, it is generally not advisable. Requiring different individuals to act together presents obvious challenges if the co-Agents do not see eye-to-eye. Trying to achieve a majority decision could also be difficult, depending on each of the co-Agents’ availability at critical times. Even allowing each co-Agent to act independently could create a chaotic and disorganized arrangement, and a co-Agent who is bypassed on an important decision may feel slighted. Finally, hospitals and some financial institutions strongly discourage naming co-Agents under many circumstances. 

Guardianship

Without these powers of attorney in place, if you become incapacitated, a guardianship may be necessary. Under Pennsylvania law, a person is considered incapacitated if they are partially or totally unable to receive or understand information or communicate decisions effectively, to the extent they are unable to manage their finances or meet their own safety and health needs. 

Guardians can be “of the person” and “of the estate.” A guardian of the person is court-appointed to make medical and healthcare decisions, as well as decisions related to well-being and safety, such as where that person resides. A guardian of the estate is court-appointed to make financial decisions, including decisions related to property. 

The roles of guardian of the estate and guardian of the person mimic the roles of agents under healthcare and financial powers of attorney. Recent changes to guardianship laws in Pennsylvania now require courts to consider “less restrictive alternatives” to guardianships and require the person alleged to be incapacitated to have an attorney appointed to represent them. Even so, in the absence of power of attorney documents, other, less restrictive alternatives to a guardianship are often insufficient to address the needs of an individual’s ongoing incapacity. 

Financial and health care powers of attorney are simple but incredibly powerful tools that give an individual a voice in how their affairs are managed when they are alive but unable to do so. While guardianship may be necessary in many cases, they substitute your decision-making for that of the court and also add additional time, expense, and obligations. Having these powers of attorney can provide peace of mind in knowing that you have a plan in place for your finances and health care, come what may.

For further information on this topic, please reach out to Alex Ostojich at aostojich@smgglaw.com.

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