While a familiar topic for some readers, the author of this piece reminds us why advisors and clients must understand the importance of powers of attorney, their usefulness and limits.

A regular topic at this news service is the subject of powers of attorney, a tool that can be used, for example, to handle cases where a person suffers cognitive impairment through illnesses such as Alzheimer's. On both sides of the Atlantic, the powers can prompt controversy – the UK had a series of legal debates on this topic a few years ago. (See an example here at sister news service WealthBriefing.) Even so, high net worth families and their advisors must understand why these powers matter, as well as their effectiveness and limits. Above all, they must realize that thorough preparation is essential. Power of attorney also fits into the whole idea of protecting clients' interests in the fullest sense, and this news service discussed the matter here in this WealthTalk video in 2020.

The following comments come from regular Family Wealth Report contributor Matthew Erskine, of law firm Erskine & Erskine. The usual editorial disclaimers apply. To jump into the debate, email tom.burroughes@wealthbriefing.com

Why should you have powers of attorney for healthcare and finance? To understand why you should have these documents, it’s important first to understand what they are and how they work. The durable power of attorney, which will handle your financial affairs, is the official appointment of an agent to act on your behalf if you are unable to do so yourself, that appointment of agent enduring past your mental or physical incapacity. 

For example, if you were going to take a cruise around the world and were to be away for a year, you could execute a durable power of attorney and place it on your checking account so that your son or daughter could handle your financial affairs, by writing checks to pay for your bills, while you are gone. In the case such as a sudden incapacitating illness, such as the coronavirus, you could execute a durable power of attorney but not give it to the agent you will appoint or place it onto a bank account or other financial account until it is required. 

The reason why you would want to have such a document as a contingency plan is because otherwise, if you are incapacitated, the only way to appoint somebody to act on your behalf would be to go into the courts and have either a guardian or a conservator appointed to handle your financial affairs. 

Not only is this lengthy and time-consuming but it's also "washing your dirty laundry in public" since necessarily it is a public record. As to the healthcare proxy, again that is an appointment for someone to communicate to your primary care physician if you are unable to communicate with your physician yourself. 

This allows the primary care physician to speak with someone other than yourself, or perhaps your spouse, without violating the HIPPA regulations. Usually, the designation of a healthcare proxy does not include any restrictions on the treatments that you can receive, which is usually described in a living will.

You can obtain a durable power of attorney by downloading the appropriate form and filling out the name and address of the individual that you would like to designate as your agent. These forms are available through your attorney, but are also available through online legal form applications, such as LegalZoom. Of course, your estate planning attorney will be able to provide you with these forms and with greater guidance on how to execute them.

By established, I'm assuming that you mean when you should give the durable power of attorney to your agent and ask them to place their name onto a checking or other financial account, and to begin handling your financial affairs. As I mentioned earlier, you could put it on just because it is convenient to have someone else handle your financial affairs, the other is when it's apparent that you will not be able to handle your affairs on your own. 

Obviously by that point you will be incapacitated, so in many cases I have held durable powers of attorney for my clients in a secure vault. It is only when the client is too ill or has too many physical or mental frailties to be able to fully manage their financial affairs that I then contact the agent, as the client's attorney, and go with them to set up the durable power of attorney on the bank account. Obviously, this is a judgment call as to how trustworthy that individual is and whether your incapacity is short-term or long-term.

I usually describe to my clients, when preparing estate plans for them, that a durable power of attorney and healthcare proxy are like buying fire insurance on your home, hopefully you will never need to use it but if you do need it, it will be a lifesaver.