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Copyright 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005 Mark E. Smathers, P.C.
A short discussion
Disability planning is as important as estate planning, particularly for a younger person. An important tool in disability planning is a document called the Durable Power of Attorney. This document allows the principal (the maker of the document) to give to an agent to take care of the principal's business and affairs. The powers given to the agent may continue despite the disability or incompetence of the maker of the power. The powers may be given to the agent immediately or the powers can spring into existence only when the maker of the power becomes incompetent. It is a substitute for a court appointed guardian or conservator, and may make it unnecessary to ever have a guardian or conservator appointed by the court.
While the need for estate planning has received wide attention, planning for disability has not. The reasons are apparent. Death is inevitable, but few people realize just how likely a period of prolonged disability is, or the magnitude of the financial and personal management problems which will result if a disability occurs. Insurance statistics tell us that a 22 year old person is 7.5 times more likely to suffer a disability of 90 days or more than to die. Forty years later at age 62 he or she is still 4.25 times more likely to suffer such a disability than to die. At age 20, 789 persons out of 1,000 can expect to suffer a disability of 90 days or more in his or her lifetime; at age 40, 635 persons out of 1000; at age 60, 221 persons out of 1000. Looking at it another way, one out of every two Americans will suffer a period of prolonged disability in his or her lifetime. Certainly these statistics should be enough to convince anyone that there is a need for disability planning.
Why then hasn't there been adequate attention focused on the need? Very simply, until recently, there hasn't been an adequate legal solution. In the past, the only solutions to assist in both management and personal health care decisions for a person who became incompetent was the court appointment of a guardian or conservator, or in limited cases, a living trust. This was because the authority of an agent under a general power of attorney also expired when the maker or principal became incompetent, except in Louisiana. Now Michigan and most other states have adopted a Durable Power of Attorney. (Michigan also now has a patient advocate statute, see the separate topic on advance directives at this site). The new concept states that if the power of attorney document expressly adopts the concept, the powers given to the agent will survive the principals disability or incapacity and will be regarded as durable. Its effectiveness continues despite the incompetence of the principal, or it may be a so called "springing power," which becomes effective when the principal becomes incompetent. If you have a power of attorney at the present time, you should make sure that it is a "durable" power that will continue if you should become incompetent. The lawyers at HERRINTON, MENEZES & SMATHERS, P.C. would be happy to review the document for you.
The alternative if you do not have a durable power of attorney will be for your family to ask the court to appoint a guardian and conservator for you. Such a procedure may be cumbersome, time-consuming and expensive. Hopefully, this information will convince you that it is desirable to discuss the need for a Durable Power of Attorney and an Advance Directive with your lawyer today.
WHAT CAN I AUTHORIZE AN AGENT TO DO FOR ME?
While the focus may be planning for disability, you do not have to be disabled to have an' agent act on your behalf under a power of attorney. For example, you may hire a bank or investment advisor to manage your securities. You may have given a power of attorney to someone to sign checks drawn on your bank account because it is more convenient. You may give the power to a relative or friend to close a real estate deal for you when you are out of town. The important thing is that you do not want these types of services stopped when you need them most, namely, when you suffer a serious disability. This is precisely what the Durable Power of Attorney insures against because the agent you have selected will still be authorized to act on your behalf. In addition, it is important to remember that it is not necessarily a permanent disability that requires a Durable Power of Attorney. Many people who suffer serious illnesses recover, but nevertheless undergo a prolonged period where it might be difficult if not impossible to manage their financial and personal affairs.
The two major areas which you should consider for inclusion in a Durable Power of Attorney are financial management and personal care decisions. In each of these areas, you can authorize your agent to do almost anything you can do yourself which does not violate some specific law. Your attorney should be able to discuss these restrictions with you. These restrictions are not numerous but some are peculiar. It is important in preparing a Durable Power of Attorney that you be specific so that the third party who is asked to rely on the instruction of your agent will know that you expected this particular action be taken on your behalf by your agent. In an emergency situation your agent (who is often your spouse or other family member) will have enough to think about without having to argue with third parties over whether or not a specific action is authorized. Consequently, don't expect a two page document. On the other hand, you shouldn't rely solely on a boiler-plate form. The document should be refined to meet your specific needs and you should be prepared to spend the time to identify specific areas of authority which may be unique to your situation.
Let's consider some of the areas of concern which might be included in a Durable Power of Attorney:
A. Financial Management Considerations
The following list is intended to begin your thinking process but should by no means be regarded as all inclusive, and you should exclude any which you think inappropriate. You might consider authorizing your agent to do the following:
1. To make deposits or withdrawals from your bank account or cash management accounts or to open new ones in your name.
2. To buy or sell your stocks, bonds or other assets as prudence dictates.
3. To buy, sell, mortgage or lease real estate which you may own and to fulfill agreements which you have made.
4. To have access to your safe-deposit box or open new ones in 'your name.
5. To sign your tax returns and to represent you if your tax returns are audited or hire professional help to do so.
6. To make decisions concerning any retirement plan you may have including IRA (individual retirement account), IRA rollovers, existing pension or profit sharing benefits, or other employment benefit which may be provided by your employer.
7. To fund a trust which you have created.
8. To borrow on your life insurance policies to avoid sale
of your other assets.
9. To deal with your life and casualty insurance policies including increasing or decreasing coverage when appropriate.
10. To deal with your business interests including the right to enter into or modify partnerships or shareholder agreements which may be needed to protect your interests.
11. To continue a gift giving program to your family if this should appear to be appropriate in the future.
12. To complete or continue any charitable gifts for a cause in which you believe.
B. Personal Care Decisions
In the event of a prolonged disability, there are a number of decisions which must be made for you which are not directly relevant to your financial management or health care.
For example, what should be done with your pets. You may have made a provision in your will for their care in the event of your death. But what if you can no longer care for them in your lifetime? The Durable Power of Attorney will help you solve such problem. Some of the other personal care decisions you might include are:
1. To pay the salaries of your employees, nurses and similar persons.
2. To receive your mail and to cancel or continue your credit cards or charge accounts.
3. To take custody of your valuable papers, including your will, insurance policies, securities or accounts.
4. To institute, settle, appeal or terminate any administrative proceeding or other litigation in which you are involved or is or has been instituted on your behalf.
5. To deal with trustees of trusts in which you have an interest and to exercise where appropriate any rights you may have in such trusts. (Your attorney's specific advice is very important is this area.)
6. To nominate a person to act as your guardian or conservator should one be necessary despite the existence of your Durable Power of Attorney.
7. To resign any position which you may hold as an officer of a corporation, an executor or trustee or a politically elected or appointed office or similar position.
8. To arrange for your travel and entertainment if that is appropriate.
9. To make appropriate arrangement for your spiritual and religious needs consistent with your beliefs.
WHOM SHOULD I SELECT AS MY AGENT?
This decision is one of the most important you must make and often requires more care than the selection of your executor or trustee. Clearly the person must be someone in whom you have implicit faith and trust. But this alone may not be enough. Is the person you have in mind available, and if so, would he or she be willing to serve if called upon? Does he or she have the specific experience required to manage your business or investments? What if the person you have in mind is unable to serve when called upon even though expressing a willingness to serve now? Clearly, picking the first person who comes to mind is not the answer.
Possibly expecting one person to possess the skills, time and fortitude to deal with all the problems that could arise involving you and your financial affairs if you were to become disabled is asking for the wisdom of Solomon. Consequently, while in most situations one agent should be sufficient, in some cases you may want to have one agent handle your financial affairs and a second responsible for personal decisions. You are not restricted to one agent and if you feel more comfortable you can have two or more. If so, then you must define their duties and specifically provide how third parties are to rely on your instructions. Even if you can select the one person appropriate for you, you must not overlook the possibility that when the time comes, or even later, your agent may not be able to act. You must, if at all possible, provide for other persons to take over when those initially named can no longer act or, at a minimum, provide in the Durable Power of Attorney for your agent to appoint his or her own successor. If you are concerned about financial management, or have extensive security holdings; you could consider authorizing your agent to transfer these assets to a stand-by trust with a professional or bank trustee. In this way, your agent will continue to handle your financial affairs but will not have the day to day worry about investment decisions. The easier you make it for your agent, the more likely he or she will be willing to act once the time arrives that you can no longer act for yourself.
While banks by law can act as agents in most jurisdictions, they are usually willing to do so only in the financial area. And they prefer that, if they are going to be managing your property under a Durable Power of Attorney, you execute a trust agreement with them. In particular, if you have set up a revocable living trust, and you have named a bank as the trustee (or successor trustee), then the bank should probably be given the power to transfer your other assets to the trust.
Some person you select may have a legal conflict of interest to your own interests. This should not present an obstacle if you know they can be trusted to protect your interests and you are willing to waive the conflict.
Once you have completed your selection process, it is probably advisable to ask the person you have in mind if he or she is willing to serve if called upon to do so. In this way, you will be prepared to tell your attorney that the named agent is willing to act. Remember, if the agent you name refuses to serve or is otherwise unavailable, the only alternative after the disability occurs is the appointment by the court of a guardian or conservator. This is precisely what you want to avoid. It is expensive, time-consuming, and far less flexible than the Durable Power of Attorney.
When selecting your agent you should consider whether or not you have also appointed a patient advocate to make medical decisions for you. (See the section at this site on advance directives). If the appointees are not the same person you may wish to ensure that the powers given to each don't overlap.
CONCLUSION
The statistics indicate the likelihood of disability in the lifetime of many Americans is real. The Durable Power of Attorney provides a flexible means of dealing with both financial and personal decisions, and may avoid the expense of inflexible guardianships or conservatorships.
The attorneys at HERRINTON, MENEZES & SMATHERS, P.C., hope that some of your questions have been answered. Please don't hesitate to ask your attorney any questions about this topic
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