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CHAPTER ONE

Introduction

Estate planning is part of financial planning that primarily involves taking steps today to address the possible risks and costs that may occur in the future that could undermine your financial, personal, or legal security. Consider:

•You head off on your dream cruise around the world—12,966,000 Americans are estimated to have taken cruises in 2014. The day you depart your bank erroneously bounces a check you deposited to cover expenses while you were gone. Who can deal with the problems that result while you are pondering the rolling waves and blue sky?

•Maybe you don’t like water, but you’ve always wanted to hike the Appalachian Trail. The day after you retire, you leave for Springer Mountain. The next day an IRS audit notice arrives at your empty condo. In 2011, there were 1,564,690 audits. Wouldn’t it be better if someone had the authority to intercede on your behalf rather than have the IRS assume you don’t intend to respond and begin collection proceedings?

•What happens if you become sick or disabled? About 5.2 million Americans are living with Alzheimer’s disease. If you are one of those affected, who will be able to handle your financial matters as you become less able to do so?

•Every year about 720,000 Americans suffer a heart attack. If you’re one of the unfortunate people who has such a medical emergency and are hospitalized for a period of time, who will pay your bills so that your bank doesn’t foreclose on your mortgage, so that the utility company doesn’t cut off your electricity and gas?

Reality Check: Disability doesn’t happen to you, it happens to the other guy, so you don’t have to plan. Right? Or perhaps disability is something that happens to sick folks and you’re tougher than a bulldog. Or maybe disability is for old people and you’re still a spring chicken.

Maybe it is time for a reality check:

•In 2012, there were 51,892,000 people over 18 who experienced a disability. That’s about 22.4 percent of the total people over 18, or nearly a 1 in 4 possibility.

•Just over 25 percent of today’s 20-year-olds will become disabled before they retire.

•Over 37 million Americans are classified as disabled, which is about 12 percent of the total population. More than 50 percent of those disabled Americans are in their working years, from 18-64.

What you need is a power of attorney.

Tip: The power of attorney is one of the most important legal and financial documents in your self-protection plan.

Healthcare Decision Making

This book does not address appointing a person (called an agent or proxy) to make healthcare decisions for you, or any of the other means you can use to communicate or address medical decision making. These issues are addressed in other legal documents such as in a healthcare proxy (sometimes called a medical power of attorney), living will, HIPAA release, and organ donor card.

Bottom Line Up Front

What we will do is guide you through many of the ways you can tailor this powerful tool—your power of attorney—to preserve your control over your finances, maintain your independence, minimize or avoid legal costs and entanglements, and deal with many unexpected “what-if” scenarios in practical ways. The checklist in Appendix A will help you gather the information and make the key decisions you need to create a power of attorney tailored for you and your personal situation, rather than relying on a standard “boilerplate” form that most likely overlooks key issues essential to your security.

What Is a Power of Attorney?

The power of attorney is a legal document that grants a designated person (your attorney-in-fact or agent) the power to act on your behalf. It is one of the most important financial and estate planning documents you can have.

Most people think only about a will when they think about estate planning, but a power of attorney can potentially authorize the transfer of more of your wealth than your will can.

A power of attorney is one of the most misunderstood documents. This book introduces a wide range of issues that you might wish to address in your power of attorney, and a number of ancillary planning steps to make the use of your power of attorney more practical. Once you see how important this document is, you will make sure that a power of attorney receives the respect it deserves in your estate and in your financial planning.

The power of attorney is a contract in which you (the grantor or principal) delegate (grant) another person (your attorney-in-fact or agent) the power and right to act on all financial matters on your behalf in the event that you are ill, injured, or unavailable. Although the agent may be called an attorney-in-fact, that individual does not have to be a lawyer. Unfortunately, this is just another incidence of confusing legal jargon.

Although the power of attorney can be a very simple document—even a one-page form—purchased at a local stationery store, or from an online Internet provider, this can be a costly mistake. The power of attorney should be a far more deliberate document designed to address your personal needs now and in the future. An overly simplistic power of attorney may prove inadequate and result in requiring more complex, and far more costly, legal proceedings to accomplish your goals. Thus, a more complex and lengthy document prepared by an attorney to deal with specific issues you might face, such as dealing with business transactions, real estate exchanges, a professional practice, gifts, and other issues, may prove simpler in the long run.

Tip: When you finish reading this brief book, you will understand why you’ll be better served with a more deliberate, planned, and tailored power of attorney.

This book will help you understand the terminology of a power of attorney, some of the key decisions you might need to make to guide your lawyer in properly preparing a power of attorney for you, and several of the many options that should be considered. We’ll explain how your power of attorney relates to your other estate planning and documents. Finally, you will get some practical suggestions on how to address your financial and legal affairs to maximize the benefits of your power of attorney. Merely securing an adequate (or even good) legal document alone will not suffice. After you read this book, you’ll understand why, and you’ll know what to do to prepare the power of attorney you need.

The Bigger Picture

Think you are too young or too healthy to need a power of attorney? Think again! According to a recent study, only 24 percent of workers have a backup plan for retirement income if forced into retirement sooner than expected. For most people, more planning is critical. A power of attorney is merely one component of what should be a comprehensive plan to address the challenges of illness, disability, and aging. For example, if you don’t have an adequate disability income replacement policy, you might have a great power of attorney document, but if your agent does not have adequate financial resources to work with, they will never really be able to help you and your loved ones in the manner you had hoped for. Comprehensive planning, not just a document, is always best.