With the myriad of sophisticated and complex estate planning solutions available nowadays, it is easy for attorneys and clients overlook the importance of Durable Powers of Attorney and Health Care Proxies. A durable power of attorney is a simple document in which an individual grants someone else the authority to handle their financial affairs. The person granting the authority is called the “Principal” and the person receiving the authority is called the “Attorney-in-Fact” or “Agent.” Similarly, a health care proxy allows a Principal to grant authority to make medical decisions to a “Health Care Agent.” In my opinion, as a Massachusetts Estate Planning Attorney, for many clients, these two documents, are just as important as Wills and Revocable Trusts.
The primary benefits of these documents come to play when the Principal is incapacitated, which means that they are unable to make or communicate legally binding decisions, because of a mental or physical disability. That is why a durable power of attorney and health care proxy are sometimes referred to as incapacity documents. To understand the benefits of incapacity documents, let’s consider what happens when an individual becomes incapacitated without them.
First, the maintenance of an individual, both financially and medically, can deteriorate before anyone even realizes that they have lost their capacity. Next, when a family member or health care provider, realizes that the individual’s capacity is lacking, they must petition the Probate Court to appoint a Guardian (to make medical and personal decisions) and a Conservator (to make financial decisions). This process is detailed in my earlier post on Guardianship and Conservatorship in Massachusetts. Suffice it to say that this process, which requires petitioning the Massachusetts Probate and Family Court and presenting medical evidence and testimony, can take many months, and cost anywhere from $5,000 to $15,000, depending on the nature of the incapacity. Finally, once the guardianship and/or conservatorship is in place, the fiduciary must make regular reporting to the court on the progress of the incapacitated person.
Now let’s consider how a durable power of attorney and health care proxy improve the scenario. First, a durable power of attorney is typically effective from the date of signing. Therefore, the Attorney-in-Fact can step in to manage the Principal’s finances when they begin to show early signs of oncoming incapacity. The transition of financial management can be gradual and limited, during a period of transition, or immediate, in case of an emergency. Furthermore, the “Durable” nomenclature of the DPOA means that it remains in effect even during a period of incapacity. A health care proxy operates in much the same way, but it only becomes effective when the Principal’s health care provider determines that the Principal has lost their capacity. Together, these incapacity documents allow for a seamless transition of financial management and medical care, without the time and expense involved in petitioning the Probate Court.
For clients with a few million dollars in the bank, the benefits of using complicated trusts in estate tax planning can overshadow the importance of a durable power of attorney and health care proxy. However, for most people, incapacity documents are more important, as they offer enormous protection from the Probate Court, and actually improve the Principal’s quality of life while they are still living it. If you or someone you know is interested in learning more about durable powers of attorney of health care proxies, contact me today.