A young, unmarried couple with a toddler have assuaged their estate planning anxiety by putting together simple wills that nominate guardians and name the toddler as their beneficiary. Two years pass. The COVID-19 pandemic arrives and the father, an orthopedic surgeon, is reassigned to his hospital’s emergency room. He eventually becomes ill and is placed on a ventilator. He cannot make his own medical or financial decisions, but his significant other lacks the authority to act on his behalf.
Like many people, this couple overlooked incapacity planning. COVID-19, along with other diseases and accidents, can lead to temporary or permanent incapacity. If a person becomes incapacitated and does not have the right legal documents in place, no one can legally make healthcare and financial decisions for that person. What can your clients do to avoid this scenario?
Durable Financial Power of Attorney
In a financial power of attorney (POA), a client (the principal) designates a person or financial institution as their attorney-in-fact (also known as an agent) to manage their financial affairs. The principal can authorize the agent to act on their behalf immediately or only if the principal becomes incapacitated. The latter is known as a springing POA.
If the principal wants the agent to be able to act even if the principal becomes incapacitated, which is often the main reason a client wants a POA, the principal must ensure that the power of attorney is “durable.” This can be accomplished with a single sentence similar to the following. “This Power shall not be affected by my subsequent disability or incapacity.”
The agent has only the powers that the principal grants in the document. A POA is general unless the principal puts limits in the instrument creating it. A general power of attorney gives the agent broad authority to transact business for the principal. It allows the agent to do almost anything necessary to manage the principal’s property. Even if the principal wants to create a general power of attorney, a simple grant of broad authority without additional clauses clarifying or expounding on the authority the principal is granting is not recommended. The POA should include specific provisions authorizing actions concerning, for example, real estate, partnership interests and voting based on stock share ownership. Unusual matters should be addressed in a general POA in order to eliminate any question of whether the principal had such acts in mind.
The selection of the appropriate agent may be the principal's most important decision. In the selection of an agent, the principal should trust the proposed agent implicitly, the agent should possess common sense and the agent must be willing and able to act in the principal's best interest.
Advance Healthcare Directive
An advance healthcare directive (AHCD) includes both an “individual healthcare instruction" and a “power of attorney for healthcare.” In the latter, the client, as principal, authorizes a named individual (the agent or attorney-in-fact) to make healthcare decisions for the principal. In the former, the client states their wishes concerning medical treatment and end-of-life care. For most clients, an AHCD with both an individual healthcare instruction and a power of attorney for healthcare makes sense.
Similar to a POA, the principal, in an AHCD, may authorize the agent to make healthcare decisions, effective immediately, or have the agent's authority triggered only on a determination that the principal lacks capacity.
The AHCD, along with individual healthcare instructions, may grant the agent the authority to make personal care decisions, such as determining living arrangements, hiring employees, providing transportation and arranging for meals and recreation. The agent has a duty to act consistently with the principal's desires. If the principal's desires are not known, the agent must act in the principal's best interest, and the law requires the agent to consider the principal's personal values when determining what would be in the principal's best interest.
In the absence of a durable power of attorney or an advance healthcare directive, the only way for someone to obtain legal authority to act on your client’s behalf is to petition the court to have themselves appointed conservator. A court proceeding results in unnecessary time delays and costs, which is not an ideal solution in an emergency. While a conservatorship proceeding is almost never the ideal solution, clients should not execute POAs and AHCDs lightly. They are potentially giving up important legal rights and empowering someone else to act on their behalf. Because of the power imbued in the agent, the principal should take their time to choose a primary agent and a back-up agent to step in should their first choice be unable to act.
Once you have spoken with your client about a POA or AHCD, and how these documents may benefit them, it is relatively straightforward to create a POA or AHCD. California has statutory forms that can be filled out by the client rather quickly. To be valid, a power of attorney and an advance healthcare directive must be either acknowledged before a notary public or signed by at least two witnesses. This requirement need not preclude getting these documents done during sheltering in place. Mobile notaries are an option, and under some circumstances, a person can use a remote notary located in a state that allows remote notarizations.
Travis Neal is an attorney at Hartog, Baer & Hand, APC and can be reached at email@example.com.