When thinking about estate planning, most people think of wills, trusts and other safeguards for handling affairs after death. But what if you find yourself in a situation where you're living but not able to care for yourself? Having arrangements in place for your family when you are gone is important, but it's just as important to have a safeguard for your lifetime affairs. The easiest way to do this is to execute a power of attorney (POA).
There are two basic types of powers of attorney – general and medical. A general power of attorney typically covers finances and legal matters. The person you designate to handle things for you is your agent. His or her ability to conduct business on your behalf (e.g., paying bills, managing investments, buying or selling real estate) only goes into effect if you are unable to manage your affairs yourself.
A medical power of attorney is only for making medical decisions, and your agent's authority to make decisions is only in effect when you are unable to.
I call executing powers of attorney an ounce of prevention because you can proactively choose someone to care for you and your affairs if you are incapacitated. If you don't, the alternative will be costly. Your loved ones will have to set up a guardianship and/or conservatorship. Unlike the powers of attorney, the court system becomes involved and it can become a long and expensive process to achieve the same result as a properly executed power of attorney.