A power of attorney (POA) is one of the most common legal documents in estate planning. It grants someone the authority to act and make decisions on your behalf should you be unable to do so yourself. But, there are different types of power of attorney, including a financial power of attorney and a healthcare power of attorney.
Currently, approximately
one in three US adults have advance directives for end-of-life care, which is a type of healthcare power of attorney. This data was based on 795,909 people in 150 studies, where 36.7% had an advance directive while 29.3% had living wills.
Equally prevalent are financial POAs, which allow someone to manage your finances when you are unable to do so. It can help streamline your finances when you need them the most but can’t do it yourself. Knowing the differences between these types of POAs is quite critical. It helps ensure decisions (both financial and medical) are being made in accordance with your wishes.
Financial Power of Attorney (Financial POA)
This is probably the most well-known POA. Financial power of attorney is a legal document that grants a designated person (the agent) the authority to handle financial matters and make decisions on behalf of the principal-agent (you) who grants the power. This POA ensures smooth management of your finances when you are incapacitated.
Situations when you need a financial POA:
- Health Issues: You can use this POA if you are diagnosed with a severe illness and will become incapable of managing your finances.
- Elderly Individuals: Many seniors face cognitive decline, which leaves them incapable of handling finances. In such a case, you can ensure a trusted person manages your finances effectively with this POA.
- Frequent Travelers: You may need a financial POA if you travel often or live abroad. It can help manage your affairs back home if you cannot be contacted.
- Business Owners: Many business owners use financial POA to ensure the continuous operation of their business. Whether you travel a lot or are temporarily incapacitated, the POA keeps your business-related finances going.
- Upcoming Medical Procedures: Many medical procedures require considerable recovery time. You can establish these types of power of attorney to put your financial matters in capable hands while you recover.
You can modify the scope of authority based on your financial needs. Usually, you can designate an agent to handle tasks like:
- Banking transactions
- Paying bills
- Managing investments
- Filing taxes
- Buying or selling property
- Handling insurance policies
Whatever your needs, you need a well-defined Financial Power of Attorney. After all, you want to safeguard your financial well-being and interests. So, speak with a competent attorney before moving forward.
Healthcare Power of Attorney (Healthcare POA)
A healthcare power of attorney is also a legal document. But it grants someone you trust (the agent or healthcare proxy) the authority to make medical decisions on your behalf when you can't make those decisions yourself. The healthcare proxy can be one of your family members, friends, or even a lawyer. Your healthcare POA comes into effect when you are incapacitated, whether due to illness, injury, or any other condition.
When Do You Need a Healthcare POA?
A healthcare POA becomes a necessity if you face serious health issues. In many medical situations, an individual might lose consciousness, face cognitive impairment, or any other condition. You can use these types of power of attorney if you face one of these situations.
However, your POA needs to specify your healthcare preferences in detail. Each healthcare POA may differ depending on the individual's needs. But you can include preferences regarding:
- Life-sustaining treatments
- Organ donation
- Palliative care
- Other critical medical choices
As you can imagine, only clear-cut instructions can help you create a sound POA. So, talk to a skilled
attorney to understand your potential healthcare needs and how you can address those in your POA.
Key Differences Between Financial and Healthcare POA
As you can see, these types of power of attorney serve different purposes. Understanding the key differences between the two can help you use them correctly, depending on your situation. Here’s how these POAs differ.
Scope and Purpose
Naturally, both POAs have different scope and purpose. The financial POA deals with managing financial matters alone. You can use it to manage banking, investments, property transactions, tax filings, and business operations.
On the other hand, healthcare power of attorney deals with medical decisions, treatment options, surgeries, medications, and end-of-life care. It focuses on safeguarding your healthcare preferences based on your culture and values.
Responsibilities of Your Agent
When it comes to POA for your finances, the agent will be responsible for carrying out financial transactions on your behalf. So, if you want someone to pay your bills, file taxes, or carry out bank transactions, these types of POA can be useful.
However, you will need a healthcare power of attorney to honor your healthcare wishes and end-of-life care. It will clearly define what your agent must do after you get incapacitated.
These are the primary differences between both powers of attorney. Most people prefer drafting different POAs for financial and healthcare needs. However, you can combine these POAs if you want. It all depends on your needs. Likewise, you can choose the same agent (person) to carry out your wishes or two different individuals for both POAs. The choice is yours.
Seek Legal Advice
Creating these POAs is an essential part of your estate planning, but you can’t make one on your own. You will need to consult a competent lawyer to understand the scope and limitations of both powers of attorney. But that’s not all. Hiring a lawyer can also help with:
Drafting
Estate planning attorneys understand the complexities of legal language and the specific requirements of a POA. They can draft these documents precisely. That means less hassle for your family members and the designated POA.
Legal Compliance
Your POA must comply with your state-specific estate planning and other laws. However, the laws and regulations governing POAs vary from state to state. Lawyers are well-versed with state-specific legal requirements. They can draft legally compliant POAs per your wishes.
Tailored POAs
Every individual has unique needs, whether financial or healthcare-related. Using one-size-fits-all templates to draft your POA may not suffice. If anything, it could lead to more confusion. Fortunately, your
attorney can create the POA to align with your wishes accurately.
Updating POAs
Life circumstances change. That's a fact. As your circumstances change, you also need to modify your POAs. Whether you experience changes in health, financial status, or familial relationships, your lawyer can make the necessary changes to your POAs.
Contact the Estate Planning Attorneys at Lermitte & Lubin, LLC for Help
Both financial and healthcare POAs can help you plan your future. With these POAs, you can ensure your wishes are honored, whether financial or health-related, as closely as possible. It also keeps your family from fighting over what to do when you are not around to make that decision. But you must understand how these POAs work and differ to make the most out of them. For this reason, you should always hire a skilled lawyer to create and modify these powers of attorney as needed.
Do you need to create a healthcare or financial POA? Talk to our trained professional attorneys at Lermitte and Lubin, LLC. Contact us today. We can help.
