Power of Attorney is a critical component of estate planning, giving someone the authority to make decisions on another person’s behalf. This ensures that their affairs are handled in the event the principal becomes incapacitated.
There are two primary types of Power of Attorney (POA); financial and medical. These primarily differ in what they manage – one covering assets and monetary matters, and the other handling healthcare choices. Understanding the differences between these documents helps individuals make informed decisions about appointing the right agents.
Financial Power of Attorney
A financial power of attorney is a document that grants an appointed agent the authority to manage financial affairs on behalf of the principal. This ensures continuity in financial management if the principal is unable to act due to illness or incapacity.
Generally speaking, the responsibilities of a financial POA include handling bank accounts, overseeing investments, paying bills, filing taxes and managing real estate transactions. Financial POAs can be durable, remaining in effect if the principal becomes incapacitated, or limited, granting authority only for specific transactions or timeframes.
Medical Power of Attorney
Similar to a financial power of attorney, a medical power of attorney is a legal document which designates an agent to make decisions on behalf of the principal if they become unable to communicate or make decisions themselves. However this specifically covers medical decisions instead of financial ones. The goal of a medical POA is to ensure that medical choices made align with the principal’s wishes.
A medical POA covers several key responsibilities. This includes consenting to or refusing medical treatments, coordinating with doctors and hospitals, and ensuring that the principal’s healthcare preferences are honored. This usually works alongside a living will or advance healthcare directive that outlines specific medical preferences, providing guidance to the agent when making decisions on the principal’s behalf.
Key Differences Between Financial and Medical POA
While both are power of attorney documents, they obviously differ in terms of what they cover. As discussed above, the key difference between the two is that a financial power of attorney gives authority over financial matters, while medical POA is limited strictly to healthcare related decisions.
Additionally, the timeline they operate on is different. A financial POA can take effect immediately upon the principal’s incapacitation, whereas a medical POA typically activates when the principal is deemed unable to communicate or make medical choices.
Why You Need Both Powers of Attorney
Comprehensive estate planning ensures that both financial and healthcare needs are managed according to the principal’s wishes. A financial and medical power of attorney prevents the need for court-appointed guardianship, which can be costly, time-consuming, and may not align with the principal’s preferences.
Without these two legal documents, decisions about finances and medical care could be left to the courts or individuals who may not act in the principal’s best interests. By appointing trusted individuals under these POAs as part of an overall estate plan, it is ensured that important financial and medical decisions are made responsibly and in accordance with the principal’s wishes.