A durable power of attorney, or durable POA, gives someone permission to make financial or health care decisions for you if you become temporarily or permanently incapable of managing your own affairs. Unlike a regular power of attorney, a durable POA stays in effect even if you become incapacitated.
The person who acts on your behalf is called the agent or attorney-in-fact. You can give the same person financial and medical powers, or you can give different responsibilities to different agents. Whatever you decide, be sure your agent is someone you trust to act according to your values.
Durable POAs can be an important part of estate planning, especially if you are likely to face incapacity or cognitive decline. Without a durable POA, your family may have to prove in court that you are incompetent before they can take over. In a health care setting, your next-of-kin — which could range from a spouse to a distant cousin — may be automatically named as a proxy.
How does a durable power of attorney work?
Essentially, you put a durable POA in place before you become incapacitated. When and if something happens and you cannot make your own medical or financial decisions, the durable POA can reduce conflict among loved ones by clearly explaining in writing who can make decisions in your stead.
Types of durable power of attorney
There are two types of durable power of attorney.
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Financial durable power of attorney. The designated agent can manage all your financial affairs while you’re incapacitated, including paying your bills and taxes and paying professionals to assist with your assets.
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Medical durable power of attorney. Your agent, who may be called a health care proxy or surrogate, can execute your wishes for medical treatments or procedures, as well as work with your health care providers to advocate for your needs. You can give your agent guidelines for your preferences by creating a living will.
How to set up a durable power of attorney
It may be helpful to consult an estate planning attorney to discuss whether a durable power of attorney is the right choice for your situation. Here’s the general process for setting up a durable power of attorney.
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In some states, you may need your document to be signed by witnesses or notarized.
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Have a plan for what to do if your agent becomes sick or incapacitated.
Tax implications of a durable power of attorney
A financial durable POA gives someone legal permission to file your income tax return for you if certain steps are taken. According to the IRS, you’ll need to fill out IRS Form 2848 to authorize your durable POA to represent you in front of the IRS and take care of your taxes.
Pros and cons of a durable power of attorney
Advantages of a durable POA
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Permanent status through incapacity. Unlike a standard power of attorney, which ends once you’re incapacitated, a durable POA stays functional when you become incapacitated.
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Clear designation of powers. Especially after an injury or health care crisis, loved ones may disagree about the best course of action for your health or finances. Naming an agent in your durable POA in advance can prevent this conflict.
Disadvantages of a durable POA
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Difficult to override or revoke. You can revoke your own durable POA if you’re of sound mind, but it can be hard to override someone else’s durable POA without going to court.
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Separate documents typically needed for medical and financial durable POAs. These are different categories of directives, and even though you can name the same person for both, you’ll need to craft and file the documents separately.
Durable POA vs. living will
The main difference between a durable POA and a living will is the subject matter. A durable power of attorney or health care proxy specifies who can make medical decisions on your behalf in case of incapacity. A living will specifies what medical treatments you want if you’re incapacitated, including your preferences for resuscitation, comfort care and organ donation.
People often combine medical durable POAs and living wills to create an advance directive.
Ideally, the agent you give power of attorney to uses your living will as a guide to make health care decisions that align with your wishes.
Source: nerdwallet.com