Life is unpredictable. But it’s not for nothing that the cliché says: if you fail to plan, you plan to fail.
One of the best things you can do to safeguard your assets is to prepare for the worst, including death and debilitating illness. You should also plan for a scenario where you’re not able to be physically present when business decisions have to be made.
Here is a checklist for estate planning you can use to get started. This article covers one aspect of the checklist—the durable power of attorney and how you can use it to protect yourself.
A power of attorney (POA) is a legal document that gives someone (called an attorney-in-fact or an agent) the authority to act on behalf of another person (called a principal). A power of attorney is usually used when the principal becomes ill, is disabled, or cannot be physically present to sign legal or financial documents. A POA is especially important to real estate investors because it means your investments are not neglected when you’re indisposed.
Now, there are several types of powers of attorney. What we will concern ourselves with here are two types that are vital in your estate planning journey.
Building on our earlier statement, we will broadly cover two types of power of attorney; durable and medical power of attorney.
A durable POA is a type of power of attorney that comes into effect in the event of the incapacitation of the principal. It is called a durable power of attorney because it can last for the entire principal’s lifetime unless it is revoked. The power isn’t activated until the principal is incapacitated, though.
The durable POA only covers legal, property, or financial issues. The agent or attorney-in-fact doesn’t have the power to make decisions concerning the principal’s health except when paying the principal’s health bills. To be able to do that, a medical or healthcare POA is needed.
A medical power of attorney gives the attorney-in-fact the power to make decisions regarding the principal’s health. You might also hear it called a health power of attorney, an advance directive, or an advance healthcare directive.
Thanks to LegalZoom and a ton of other online sites, you can download or buy a power of attorney template online. However, because of how the requirements vary by state, we recommend you contact a asset protection attorney to guide you through the process.
While a POA is extremely useful, it doesn’t allow the delegations of a few rights, such as the right to vote, the right to make, amend, or revoke a will, and (in some states) the right to contract a marriage.
While the requirements of a POA vary from state to state, here some general recommendations:
Creating a durable power of attorney can have tremendous advantages: it means you can still be in charge (in a sense) if you are incapacitated. However, in essence, you are signing over your entire financial and legal life to someone else to control. Even though there are means to help make creating a power of attorney safer, such as choosing multiple agents and having them check each other, you should take note of who you select as an agent.
Here are some characteristics you should check for when naming an agent:
A durable power of attorney document will help safeguard your investments when you’re not able to do so personally. You should take care to select an appropriate agent when creating one, to ensure optimal protection.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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