Our clients frequently ask us, “How do I know if I have a good power of attorney in place?”

If you're ever unable to manage your financial affairs (stroke, Alzheimer's, dementia, etc.), or if you need long-term care in the future and want to protect your assets, then you don't want to have what we call a “powerless power of attorney.”

The Different Types of Powers of Attorney

The first type of power of attorney is for health care. It is a document that states if I'm not able to communicate my own wishes regarding doctors, hospitals, medication, nursing homes, or other health care related issues, then I appoint my wife, husband, child, friend, etc. to make those decisions for me. We talked about that in another newsletter and if you want more information on that you should click here.

The second type of power of attorney is a power of attorney for finances. This is a document that says that as long as I can make decisions, I'll make decisions, but I may want to appoint someone either to help me or to take over for me. This would be regarding things like taxes, real estate, bank accounts, IRAs, or anything from a financial perspective. In this article, we are going to focus on the financial power of attorney.

Financial Power of Attorney

The first question we ask is, “When do you want the document to take effect?” It's a tricky question for someone who has Alzheimer's, for example. Very frequently what happens is they have periods of time during the day when they might be quite lucid. And yet as the disease progresses, they may get to the point where at certain times during the day they're lucid and at other points of the day they might do what we call sundowning, where their capacity starts to wane.

Very frequently with our Alzheimer's and dementia clients, we want to find very trusted loved ones and appoint them as the agent on the power of attorney and make it effective immediately so that they can help any time help is needed.

Powerless Power of Attorney

Now, we also want to be sure that they don’t have what we call that powerless power of attorney.

What does that look like? We'll give you an example. We had a family in our office just a couple of days ago. They brought in a power of attorney and it was basically a one page document. In layman's terms, it said, “I am going to appoint John Smith, and I'm going to give him broad powers to handle anything related to finances.”

If you looked at that, you might think, that must be a really powerful power of attorney, because it says John Smith can do anything for me.

It's actually kind of paradoxical, however, because with powers of attorney, they really have to be specific. The more you put into the power of attorney, the more authority your agent will have.

Our powers of attorney are over 20 pages long, because we really need to list out everything. We want to make sure that it's powerful.

How Do We Make it Powerful?

One of the first things we do is give our agent, the person who's going to make decisions for us, incredible flexibility, because circumstances change. You know, when someone's on the Alzheimer's journey, so to speak, where they are today may not be where they're going to end up a year from now or more.

Allow for Gifting

The second thing we want in our powers of attorney is language which allows for gifting. The reason is because as their disease progresses, they may get to the point where they're going to need to do some planning to protect their assets, to put money into the family's name, to set the assets up in such a way to protect them and their spouse, and so on. If we don't have that language specifically in the documents, their financial institutions won’t allow it. All asset protection strategies need to be spelled out in great detail.

Consult With an Elder Law Attorney

The bottom line is that it is possible to create a very powerful power of attorney, but you really need to consult with an elder law attorney who knows how to do this and get good documents in place while the person who has Alzheimer's or dementia is still able to participate. The last thing we want to see down the road, is for you to be out of money or options. A good power of attorney will allow your agent to protect your assets and will avoid the need for guardianship and/or conservatorship.