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What Do You Need In Addition To A Will? (Part 1)

by | Jun 4, 2015 | Estate Planning |

Almost everyone is familiar with a “Will”, but a Will is not the only document you need. A Will operates only after a person’s death; however, there are documents that are extremely important to have if you become disabled, even temporarily.

If you were to be severely injured in a car accident, you may be placed in a “medically induced” coma to help your body heal. What happens to your finances while you are in a coma, even if it is for only a few weeks? If you have joint financial accounts (with a spouse or adult child, for example), then the co-owner can write checks from your accounts while you are unable to. However, it is not common for parties to have all of their financial accounts in joint names. If you are the sole person named on a checking account, and you are now in a “medically induced” coma, legally no one can use that account while you are incapacitated. In order to pay your bills, a friend or relative would need to go to Court and become your legal guardian in order to handle your finances.

One simple document can avoid a guardianship proceeding: a durable power of attorney. The durable power of attorney (DPA) allows you to appoint someone (called an “agent”) to make financial decisions for you if you are not competent to do so. The DPA must specify that it is effective even if the individual becomes disabled or incompetent. New Hampshire law suggests the following language for DPA’s: “This power of attorney shall not be affected by the subsequent disability or incompetence of the principal”.
New Hampshire law (and the laws of other states which recognize a DPA as legally valid) required that specific language because under traditional law, a Power of Attorney (POA) was legally valid only if the person who appointed an agent was competent at the time the agent used the POA. (Of course, a person must be competent and not under a disability at the time he/she signs the DPA or POA). In other words, a regular POA does not “endure” beyond the time when a person becomes incompetent or disabled. Upon incompetence or disability, a traditional POA is considered legally invalid. However, New Hampshire, like most other states, came to recognize that it was extremely practical to allow a POA to “endure” or be “durable”, and changed the law to extend the powers granted in the POA to the agent even if the person appointing the agent becomes incompetent/disabled.

What happens if the Court appoints a guardian of an incompetent/disabled person’s finances, even though the disabled person has a valid DPA? The Court-appointed guardian’s powers would generally take precedence over the agent appointed under the DPA, unless the Court specified otherwise.

One final issue: does a DPA help to settle the estate if a person under a DPA eventually dies? The answer is no-a DPA only operates while the person is living; the powers expire immediately upon death, but the appointed agent would provide an accounting to the Executor of the Estate once the Court appoints an Executor.

Next week’s topic is Part 2, covering the Living Will in the Advance Directive