The following is adapted from The Entrepreneur’s Guide to Financial Well-Being.
A durable power of attorney gives another person the authority to act on your behalf in financial matters if you become incapacitated. Many spouses give each other durable power of attorney for their finances. In contrast, an “ordinary” power of attorney ends when the person who designated it loses the ability to make financial decisions.
In either case, these powers of attorney end when you die.
At that point, the executor of your estate takes over, although sometimes, the executor may be the same person who held a durable or ordinary power of attorney.
Durable power of attorney isn’t just for spouses. Many parents have durable power of attorney for their college-aged children, for use in the event of an emergency.
In most states, eighteen is the “age of majority,” the moment when children are considered adults. At this point, teenagers assume legal control over their own medical and financial records, terminating the responsibilities of their parents or guardians. Without a simple estate plan in place for their eighteen-year-olds, parents may be surprised in an emergency when they can’t access a child’s accounts.
Here’s a hypothetical situation: John and June sent their son, Tom, off to college. Tom and a group of friends decided to carpool home for the weekend. On the way, they got into a serious car accident that left Tom unconscious and in the hospital.
Distraught, John and June called the hospital to learn about their son’s condition, but because Tom was an adult, the hospital refused to release information about his status.
When they arrived at the hospital, John and June couldn’t even speak with Tom’s doctor. They had to wait until Tom regained consciousness and gave his doctors permission to release his medical information to his parents.
You can imagine the heartache, confusion, and frustration a parent might feel in this situation. Most parents assume if a child still lives at home, or if they are paying to send that child to college, they still have the right to make decisions on their child’s behalf.
With a simple estate plan, Tom’s situation could have played out much differently.
At a basic level, his plan should have included:
- A Health Insurance Portability and Accountability Act (HIPAA) release. A signed HIPAA release could have enabled doctors to release information about Tom’s medical condition to his parents.
- A healthcare proxy. If Tom had a healthcare proxy in place, and had named his parents as his agent, they would have been able to make healthcare decisions on his behalf when he was unable to make those decisions on his own.
- Financial power of attorney. If Tom had remained unconscious for months and had given financial power of attorney to his parents, John and June would have been able to access Tom’s bank accounts, pay his bills, and speak to his landlord about his apartment lease.
Beyond the basics, and perhaps as Tom gets older, he could consider keeping a list of all of his social media accounts and subscriptions (including login information) and naming a trusted individual to manage or terminate those accounts if he died.
In addition, Tom might consider creating a will or purchasing a life insurance policy that would cover his burial expenses. He should also think about identifying beneficiaries for his bank accounts or his 401(k) when he gets his first job. Finally, he should revisit his estate plan regularly, because a young person’s life changes frequently.