The Power of Attorney and Healthcare Directive: Planning for the Unexpected

By W Financial Advisors  •  Wealth Wednesday Brief  •  3–5 min read

SCENARIO 

When Kevin had an unexpected stroke at 71, his family discovered a gap in his otherwise thorough financial plan. He had a will. He had a trust. But he had no durable power of attorney.

His adult daughter, who lived nearby and was clearly the person Kevin would have wanted to manage his affairs, found herself unable to access his bank accounts, speak to his financial institutions, or manage his bills. Because no power of attorney existed, a court-appointed conservatorship became necessary, a process that took four months, cost thousands of dollars in legal fees, and ultimately named the same daughter Kevin would have chosen anyway.

A single document, executed on a routine Tuesday afternoon, would have prevented all of it.

THE CONCEPT 

Two documents form the core of incapacity planning:

A Durable Power of Attorney (DPOA) for finances designates an "agent" (sometimes called an "attorney-in-fact") to manage your financial affairs if you become incapacitated. The word "durable" is critical because it means the power persists even if you lose mental capacity. A regular power of attorney terminates upon incapacity, making it useless for this purpose. With a DPOA in place, your agent can pay your bills, manage your investments, file your taxes, communicate with financial institutions, and make financial decisions on your behalf.

A Healthcare Directive (also called an Advance Healthcare Directive, Living Will, or Healthcare Proxy) serves two related purposes: it names a healthcare proxy (the person authorized to make medical decisions if you cannot), and it provides instructions about your medical wishes, including end-of-life care preferences, artificial life support, and organ donation.

These are separate documents with separate purposes. Both are important. Many people have one without the other.

Example 

Consider what happens without these documents:

Financially: If you become incapacitated without a DPOA, no one, not your spouse and not your adult children, has automatic legal authority to manage your finances. They can't access your bank accounts, sell property on your behalf, or communicate with your retirement account custodians without a court order. The court process to establish a conservatorship is public, takes months, and requires ongoing court oversight.

Medically: Without a healthcare directive, family members may face disagreements about your treatment, with no clear legal guidance about your wishes. In the most emotionally difficult moments, they're left to guess. Disputes among family members about end-of-life care are not uncommon and can cause lasting harm to family relationships.

With proper documents in place, both scenarios are addressed in advance, privately, on your terms, with the people you've chosen.

STRATEGY 

Creating these documents involves working with an estate planning attorney to:

• Choose the right agents. The person you name as financial agent in your DPOA and the person you name as healthcare proxy may or may not be the same individual. Consider trustworthiness, availability, organizational skills, and their relationship with other family members.
• Be specific in your healthcare directive. Beyond naming a proxy, the most valuable healthcare directives provide clear instructions about your wishes in specific circumstances: What if you are in a persistent vegetative state? What about comfort care vs. aggressive intervention? The more specific you are, the less burden falls on your proxy to interpret your intent.
• Review periodically. A DPOA and healthcare directive should be reviewed every few years and after major life changes, particularly if your named agents have died, moved, or their relationship with you has changed.
• Communicate with your agents. The documents are valuable. But your agents' ability to carry out your wishes is enhanced if they actually know what those wishes are, and know where to find the documents when they need them.

COMMON MISTAKE 

A common mistake is creating a healthcare directive focused entirely on end-of-life wishes while neglecting to name a specific healthcare proxy. If you don't name a proxy, medical providers may defer to next of kin, which may or may not align with your preference. Another common mistake is having these documents but storing them somewhere inaccessible in a crisis. For example, a fireproof safe that only you know the combination to is not useful in an emergency.

KEY TAKEAWAY 

A durable power of attorney and healthcare directive are among the most important, and most overlooked, documents in a comprehensive financial and estate plan. Creating them is a relatively simple process that provides significant protection for you and your family.

1.  National Institute on Aging. Advance Care Planning: Health Care Directives. nia.nih.gov.

Every situation is different. If you would like to think through how this applies to your plan, we are here to help.

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