SHOW NOTES: 2019-08-01 MiM

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Last Week’s Question of the Week: How many Social Security credits must you earn to qualify for a retirement benefit?

ANSWER: You must earn 40 credits which equals 10 years of work to qualify for retirement benefits through Social Security.

HOST: On previous shows you have detailed out all the facets of financial planning that you review with clients which include a review of their estate planning documents. Today you are highlighting the importance of having your POA’s in order. What are you exactly referring to?

KLAAS FINANCIAL: Usually when people hear of estate planning, they think one of two things:

  • Estate planning is only for people of sizeable wealth
  • Estate planning is only about Wills and Trusts

Today, we want to debunk those thoughts, because everyone upon their death has likely accumulated some assets — whether it be investments, real estate, or other real property. It is important that upon your death, that you leave detailed instructions as to how you wish the remaining assets to be distributed and to whom. Those instructions ideally will be specified in either a will or Trust. Hence, estate planning is for everyone who owns or possesses things of value. And remember, if you don’t have instructions, the state you live in does, and to die INTESTATE means that you have died without directions, hence the state will dictate how YOUR property will be divided and distributed which MAY NOT be how you wished it to be done.
Secondly, estate planning is NOT only about Wills and Trusts which directs how those assets and your instructions should be carried out after your death, but equally important is having the proper Power of Attorney documents in place while you are still ALIVE.
Today’s show covers the differences in POWER of ATTORNEY documents that you may have heard of.

DISCLAIMER: We are not estate planning attorneys; however, we do work with them to set up plans for our clients. You should consult your own attorney for what makes sense for your own situation.

Essentially “Power of Attorney” documents allow a person (the principal) to decide in advance whom they trust and want to act on their behalf if they become incapable of making decisions for themselves. The person who acts on behalf of the principal is called the agent. Two main types of POA are medical and financial.

A medical POA (also known as healthcare POA) gives a trustworthy friend or family member (the agent) the ability to make decisions about the care the principal receives if they are incapacitated.

A financial POA gives an agent the ability to make financial decisions on behalf of the principal. It is common to appoint one person to act as an agent for both financial and healthcare decisions, but in some situations it may be wise to separate the two.

Remember, the difference between being a beneficiary (this only comes into effect at the death of someone, whereas the POA document comes into effect while the person is still living, typically incapacitated.) Which is more likely, incapacitation or early death?

HOST: What misconceptions do people have about a Power of Attorney?

KLAAS FINANCIAL: Misconception #1: You can sign a power of attorney if you are legally incompetent. No! Someone can sign a power of attorney (or any legal document, for that matter) only if they are legally competent to do so.

For some reason, people do not grasp the concept that one needs to be competent to execute legal documents. Once you or your parent perhaps lacks legal capacity, then you or them can no longer sign any legal documents including a power of attorney. The only recourse is then a conservatorship or guardianship proceeding through the court, which is a very costly and time-consuming process.

Misconception #2: A power of attorney survives death. All powers of attorney terminate on death. So it follows that once a person has passed away the authority granted to the agent under the power of attorney terminates.

The difference between a regular power of attorney and a durable power of attorney revolves around incapacity.
Regular types of power of attorneys all terminate on death or incapacity — meaning that the agent can engage in legal business on behalf of the principal until the principal dies or is mentally incompetent to act on their own behalf. Once either of those events happens, the power of attorney is no longer valid. This general power of attorney might be useful if the principal is out of the country or otherwise indisposed.
A durable power of attorney, on the other hand, can survive mental incapacity (but not death). A durable power of attorney allows the agent to continue to act on the principal’s behalf even if the principal is mentally incompetent.

HOST: What is the difference in a Health Care POA and a Financial POA and what decisions can they make?

KLAAS FINANCIAL: The powers of an appointed agent can be broad or narrow, depending on how the POA document is written. Here are a few examples of the kinds of decisions each type of POA can make. A healthcare agent (POA) can decide:

  • What medical care the principal receives, including hospital care, surgery, psychiatric treatment, home health care, etc. (These choices are dependent on the financial means of the principal and the approval of their financial agent.)
  • Which doctors and care providers the principal uses.
  • Where the principal lives. This includes decisions regarding residential long-term care, such as assisted living, memory care, and nursing homes. Again, the principal must be able to afford their living arrangements and the financial POA must approve these costs.
  • What the principal eats, who bathes them, etc.

A financial agent (POA) can:

  • Access the principal’s financial accounts to pay for health care, housing needs and other bills.
  • File taxes on behalf of the principal.
  • Make investment decisions on behalf of the principal.
  • Collect the principal’s debts.
  • Manage the principal’s property.
  • Apply for public benefits for the principal, such as Medicaid, veterans’ benefits, etc.

HOST: That brings us to the Money in Motion Listener Question Corner. Related to this topic, one of your listeners, Lori e-mailed the following question: “I am my mom’s POA, are there things that I am not allowed to do with that document?”

KLAAS FINANCIAL: Thanks Lori for sending us that question!

A generic POA document that does not contain any limitations typically gives an agent broad power over medical or financial decisions. However, the agent under a power of attorney always has an overriding obligation, commonly known as a fiduciary obligation, to make decisions that are in the best interests of the principal (the person who named the agent under the power of attorney). However, there are still a few things that an agent cannot do.

An agent cannot:

  • Change a principal’s will.
  • Break their fiduciary duty to act in the principal’s best interest.
  • Make decisions on behalf of the principal after their death. (Unless the principal has also named the agent as the executor of their will or the principal dies without a will and the agent then petitions to become administrator of their estate.)
  • Change or transfer POA to someone else. An agent has the right to decline their appointment at any time. However, unless the principal named a co-agent or alternate agent in the same POA document or is still competent to appoint someone else to act on their behalf, an agent cannot choose who takes over their duties.

Getting your POA documents in place:
While it is true that you can get power of attorney documents on the internet, we would normally prefer that our listeners utilize an estate planning attorney to make sure things are done properly for the state that you live in, is current, and represents the details appropriate to your situation.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.