Financial Power of Attorney vs. Medical Power of Attorney

What Is Financial Power of Attorney?

Financial power of attorney is a legal document authorizing another person to manage your financial affairs. The person granting the powers (you) is the principal; the other person is your designated agent or attorney-in-fact.

A conventional or general power of attorney takes effect immediately and ends if you become incapacitated, die or withdraw authorization. There's also a durable power of attorney, which remains in effect even after you're incapacitated. Finally, a springing power of attorney takes effect when you become incapacitated.

Power of attorney can give your designated agent authority to:

• Make deposits to or withdrawals from your bank accounts
• Collect your debts
• File lawsuits on your behalf
• Sell or buy property for you, including real estate
• Pay your bills
• File your taxes
• Oversee your business finances
• Settle or file insurance claims for you

You decide how much power to give your designated agent. For instance, you might give someone power to manage real estate transactions and nothing else.

How to Choose a Financial Power of Attorney

State laws govern who can have financial power of attorney. Typically, the person must be 18 or older and mentally sound. A designated agent can be a family member, such as a sibling or child, or a trusted friend. When choosing your designated agent, consider:

• Do you trust this person to oversee your finances in your best interest, even if that conflicts with theirs?
• Do they manage money well?
• Do they have time?
• Do they live nearby?

You can choose multiple designated agents. If so, make sure your document specifies whether they must agree or can act independently. If you choose only one agent, select at least one alternate in case your first choice is unavailable.

How to Obtain a Financial Power of Attorney

A power of attorney must follow state laws. To ensure the document accomplishes your goals, it's best to enlist an attorney or legal aid service.You can also find power of attorney documents online and have an attorney review them. A few other things to keep in mind:

• Most states require a financial power of attorney to be signed and notarized.
• If witnesses are needed, state law will dictate who can and cannot be a witness.
• Keep the original with your estate planning documents unless it takes effect immediately. If so, give the original to your agent and keep a copy for yourself. Your financial institutions may also need copies.

What Is a Medical Power of Attorney?

A medical power of attorney is a legal document authorizing another person to make decisions about your medical care if you're unable to do so. It's sometimes called a health care power of attorney, a designation of surrogate or a patient advocate designation. The authorized person may be called a health care proxy, health care surrogate or patient advocate.

Your proxy can make decisions such as:

• What medical treatment you receive
• Whether to put you on life support
• When to use CPR
• Whether to use extraordinary measures to prolong your life
• Whether to donate your organs

Every adult should have medical power of attorney, regardless of health. If you're hit by a car and go into a coma, a health care power of attorney ensures someone you trust makes your decisions. Without it, doctors or loved ones who don't know your wishes may make choices on your behalf. State law could give your parents instead of your life partner the power to make these decisions.

Medical powers of attorney are durable: They take effect only when you become incapacitated. In many states, a health care power of attorney combined with a living will creates an advance directive or health care directive. Unlike medical power of attorney, a living will is followed only at the end of life. If you are incapacitated but expected to recover, health care practitioners will consult your medical power of attorney, not your living will.

How to Choose a Medical Power of Attorney

A health care proxy literally makes life-or-death decisions for you, so choose carefully. Proxies must be adults according to state laws (generally age 18). Many people choose a spouse, sibling or child, but this isn't always the best option. Consider:

• Can you trust this person to carry out your wishes, even if those wishes conflict with their own?
• Can you discuss your wishes honestly with this person?
• Do they live nearby?
• Are they assertive enough to advocate with health care providers for the treatment you want?
• Can they handle the responsibility?

Appointing the same person as financial and health care agent makes things easier when paying medical bills. However, it's also a lot of responsibility for one person. If you choose multiple agents, make sure they agree on what's best for you. That way, you won't have to worry that your designated financial agent will delay paying for treatment.

It's best to appoint only one health care proxy. Two or more may disagree about your wishes. Name at least one alternate in case your first choice can't serve.

How to Get a Medical Power of Attorney

An attorney can set up a medical power of attorney for you. It's also fairly simple to do it on your own.

• Obtain the correct medical power of attorney form for your state.
• Decide what powers to give your health care proxy. The American Bar Association has a free toolkit to help you make these decisions.
• Complete the health care power of attorney form.
• Follow state requirements for finalizing the document. This generally requires signing it before a notary. If you need witnesses, state law will dictate who can or cannot serve.
• File the original with your estate planning documents. Give copies to your agent, doctors and anyone else involved in your health care.

Other Estate Planning Tools

Powers of attorney are only one aspect of estate planning. Others include:

• Your will: A will details how your assets and possessions are distributed after your death and names guardians for your children.
• A living trust: Transferring your assets into a living trust can prevent your estate from going through probate, which can be costly and time-consuming.
• Payable-on-death (POD) accounts: Designate beneficiaries of your cash savings accounts and certificates after you die.
• Burial arrangements: Prepaid burial plans can ensure your loved ones don't face financial burdens at a difficult time.

Review your financial and medical power of attorney, along with your estate plan, after any major life change. Like reviewing your credit report and credit score regularly, doing so is key to monitoring your financial health.