Imagine that your spouse has been in a serious automobile accident and left in a comatose state. You need money to pay for some of the extensive hospital bills. But when you try to mortgage your home or sell one of your cars, you find that the title is in both names and that nothing can be done without the spouse's signature. Your only recourse is to apply to the courts for a guardianship of your spouse to give you the power to make decisions on his or her behalf.
Without advanced planning for this situation, the disabled person’s property will probably not be managed in the manner which the disabled person would prefer. Instead, the control of property during a period of disability will be decided by the courts in a guardianship proceeding. Such guardianship proceedings are expensive and burdensome.
In a guardianship proceeding, it is up to a judge to determine who should be named as a guardian. The person selected by the judge may not be the person whom you would have selected had you been able to make such a decision. In addition, a guardianship can be costly and cumbersome, and the amount of red tape involved may unnecessarily delay the administration of your financial affairs.
One way to plan for disability and avoid unwanted guardianship proceedings is through the use of a legal instrument known as a durable power of attorney for asset management. This is a document by which one person, known as the “principal,” authorized another person, the “attorney-in-fact,” to act on the principal's behalf. Unlike other agency relationships, a durable power of attorney will not terminate upon the disability of the principal.
To make a power of attorney “durable,” it must contain language such as, “This power of attorney shall not be affected by the disability of the principal.” And unlike a guardianship, the use of a durable power of attorney does not result in a judicial declaration of disability whereby you may lose significant rights, such as the right to vote and the right to enter into contracts.
You, as the principal, can grant your attorney-in-fact all of the authority to act as you would have if you were able to continue to manage your assets, or you may limit the authority of the attorney-in-fact to specific actions.
A general grant of authority to an attorney-in-fact includes the authority to make deposits or withdrawals from any financial or brokerage account, to obtain access to the principal's safety deposit box, and to sell or encumber the principal's real estate and personal property.
The attorney-in-fact cannot be given the authority to make, amend or revoke your Will, but can make life insurance and retirement plan beneficiary designations, fund trust agreements, and enter into community property and other agreements. Also, if specifically authorized, the power to make gifts of the principal's property and the power to disclaim property can be included in the grant of authority in a durable power of attorney.
Specifically including the power to make gifts and the power to disclaim property in the durable power of attorney could, for example, allow the continuation of a previously established gift program to reduce estate taxes and otherwise maintain flexibility in your estate plan.
A durable power of attorney does not need to be recorded to be effective. If, however, your attorney-in-fact will be engaging in any real estate transactions on your behalf, the durable power of attorney should be recorded.
A durable power of attorney can be drafted so that it takes effect either upon the disability of the principal or at the time of its signing. A durable power of attorney which is effective only on disability provides future protection while at the same time providing you with the peace of mind of knowing that your attorney-in-fact will only be able to act if you are actually disabled. A benefit of the immediately effective durable power of attorney is that it allows your attorney-in-fact to act on your behalf when you are temporarily unavailable, and there is obviously no need to determine if incompetency has occurred. Commonly persons will grant their spouse the power to act immediately while others named can only act after a disability has occurred.
As a practical matter, you should inform your named attorney-in-fact, or a family member, that a durable power of attorney has been signed. Otherwise, if disability does occur, it may be accidentally assumed that there is no alternative to a guardianship.
A durable power of attorney can also be used to nominate a preferredguardian if guardianship proceedings become necessary. Except in unusual circumstances, the court will make its appointment in accordance with your most recent nomination in a durable power of attorney.
Washington law has been changed to allow for a separate durable power of attorney for health care. In this case, the power is used to nominate an attorney-in-fact to make health care decisions on your behalf if you are unable to do so (for example, if you are unconscious). The health care power of attorney document usually grants the named attorney-in-fact the authority to consent, to refuse to consent, or to withdraw consent to any care, treatment, service, or procedure to maintain, diagnose, or treat a physical or mental condition. For long term disabilities, is typically the health care attorney-in-fact who will make the decision as to whether or not you stay in your own home or are placed in a nursing home.
The selection of the health care attorney-in-fact is often based on which family member or friend is the most compassionate, rather than who is the best businessperson. So the choice of the health care attorney-in-fact may not be the same person who would hold a durable power of attorney to manage your property.
In summary, the disability of an individual can cause greater difficulties in a family than the death of that individual. Because a Will is only effective upon death, the property management plans that have been established in a Will are useless during a period of incompetency. A durable power of attorney for asset management and a durable power of attorney for health care prepared by an estate planning attorney are an extremely flexible and low cost methods of dealing with the problem of disability.