Documents in Planning for Disability - Living Wills, Healthcare Proxies and Powers of Attorney

Documents in Planning for Disability: Living Wills, Healthcare Proxies and Powers of Attorney

            Planning for disability is an important component of estate planning. It is natural to assume that many people (especially those who live long) will, at some point, either temporarily or permanently become incapable of managing their own affairs. By planning and executing certain basic documents while healthy, a person can help ensure seamless management of his or her healthcare and financial affairs.

Living Will

            A living will, also called a healthcare directive or advance directive, is not actually a “will” at all. It is a document that sets forth instructions regarding the end-of-life care wishes of the person executing the document. A living will can direct healthcare providers in any manner one chooses, but typical living will provisions direct the withholding of life-sustaining medical treatment that serves only to prolong the process of dying when there is no reasonable chance of recovery. Another common provision is to allow “palliative” care, which means care to alleviate pain or discomfort while dying. Living will templates also often have space to allow the client to choose any specific types of treatments she does not want. A living will typically requires two witnesses.

The living will gained national attention in 2005 in the Terri Schaivo case, in which Terri’s husband and parents fought in courts (eventually seeing the state and federal governments get involved) over whether to continue to provide life-sustaining medical care to prolong Terri’s life after she had been in a near-vegetative state for years. Had Terri executed a living will prior to her disability, the controversy may have been avoided.

Healthcare Proxy

            The healthcare proxy is a common alternative or addition to the living will. It designates a relative or friend to make healthcare decisions. Like the living will, it must be signed in front of two witnesses, who should also then sign as witnesses. The healthcare proxy can name a single proxy or multiple proxies who may be empowered to act individually or be required to act by majority or unanimity. The healthcare proxy can also name a backup proxy in the event that the first proxy is unavailable to be consulted.

            It is also common for a living will and healthcare proxy to be contained in the same document. The living will sets forth instructions for certain events and treatments, while the healthcare proxy empowers other people to make decisions that are not covered by the instructions.

Power of Attorney

A power of attorney empowers one or more people to conduct financial transactions on behalf of the “principal.” The people vested with this power are the “agents.” As with the healthcare proxy, multiple agents can be designated so that they can act independently, by majority or unanimously. Backup agents can also be named.

Power of attorney forms are often standardized by the state, so that they do not need to be drafted from scratch. They often give the principal the power to choose from a laundry list of potential authorities (such as transactions involving real estate, personal property, stocks and securities, banking, insurance, government benefits, retirement accounts, tax matters, etc.). The principal can simply give all such powers to her agent or may pick and choose from amongst them. The principal also can describe additional powers or limitations on granted powers in the form.

A power of attorney can be nondurable, durable or springing.

A nondurable power of attorney takes effect immediately, giving the agent the authority to act on behalf of the principal upon execution of the document. However, the authority ends upon the mental or physical incompetence of the principal. Because the points of most powers of attorney are to plan for incapacity, the nondurable option is not very popular. It may be used in cases where the power of attorney is designed for a single transaction or series of transactions. In such case, the principal may not want to transactions completed if she becomes incompetent in the interim.

A durable power of attorney is the most commonly executed power of attorney. It gives immediate power to the agent and the power remains intact if the principal becomes incompetent. This form is preferred by people who are designating trusted friends or family members as agents.

A springing power of attorney does not take effect immediately. It only vests power in the agent to act on behalf of the principal once the principal becomes disabled. This is a popular choice among people who don’t completely trust their agents to act on their behalf, but recognize the necessity to empower someone to act in the event of disability.

            Powers of attorney typically must be witnessed, notarized or, in some states, both.

Gifting with a Power of Attorney

            Gifting assets to trusts or directly to beneficiaries is an important component of many estate plans. The question then arises whether making large gifts can be done via power of attorney for grantors who are no longer competent. Giving large gifts for purposes of creditor protection, tax planning or Medicaid eligibility is not typically a task that one associates with a power of attorney.

            Therefore, if a client wants to vest her relative or friend with the authority to engage in estate planning with her money, she should indicate such expressly in the power of attorney. For example, she might write in the “powers bestowed” section of the power of attorney form that she gives her agent the authority to “engage in estate planning and take all steps helpful to estate planning goals decided upon by my agent, including the authority to gift some or all of my assets to my beneficiaries or trusts for their benefit.”

            New York takes this idea one step farther and only allows powers of attorney to make large gifts if the principal has signed a “Statutory Major Gifts Rider,” which is a separate document giving express authority to agents to make gifts with the principal’s assets for estate planning purposes. This document must be signed by two witnesses.

            The living will, healthcare proxy and power of attorney comprise a set of documents that allow people to quickly and easily make plans for their healthcare and financial management in the event of disability.