Lauderdale: 5 common myths about powers of attorney

Mitzi Lauderdale

While most of us have heard of a power of attorney, many have misconceptions about them.

A few common myths:

1. There is one uniform power of attorney document. Definitely not. There are many types that can be further complicated by state-by-state variations. Some states recognize other states’ documents while others do not. Texas has a statutory power of attorney form available online that might be acceptable to address simple needs. However, it is essential to work with an attorney to draft a document to meet your specific needs.

2. I can sign a power of attorney even if I lack mental capacity. A power of attorney is a contract that grants rights to a third party (the agent) to act on our behalf. To be valid, the person granting the rights (the principal) must have mental capacity to execute the document. A power of attorney cannot be used in lieu of a guardianship for individuals with mental incapacity. A power of attorney can be valid for a person with mental incapacity as long as the document was executed prior to the occurrence. In fact, this is one of the key reasons everyone should have a durable power of attorney in place.

3. A durable power of attorney and healthcare power of attorney are the same. A durable power of attorney grants rights to an agent to act on your behalf regarding your assets. Limited or general? These rights can be general to all assets for an unlimited time or can be limited in scope regarding the time frame and assets included. A medical power of attorney grants a trusted loved one the ability to make medical decisions on your behalf.

4. Senior citizens are the only people who need a power of attorney. Accidents and unforeseen illness can sadly strike at any age. Having a plan in place can ease the burden of one aspect of an already stressful and complicated circumstance. Assuming your spouse has automatic power to make decisions on your behalf is not a safe assumption. It can be much more complicated unless you have granted them the power of attorney.

5. A power of attorney can be used to handle my loved one’s estate upon death. Sadly, I have had to be the bearer of bad news for families who thought this could simplify or avoid the probate process. While there are other ways to structure an estate to avoid probate, a power of attorney is not one of them. A power of attorney allows the agent to stand in the shoes of the principal to make decisions. The power of attorney does not continue beyond the death of the principal. Many times, the agent is also the named executor, but most business for the estate cannot be conducted until letters testamentary have been issued by the court through the probate process.

As long as you avoid the common misconceptions, a power of attorney can be an extremely useful tool to meet our needs ranging from simple to complex. Simple – to allow a friend to close on a house on our behalf because we are out of the state. Complex – in the event we become mentally incompetent due to an accident or illness, we have chosen our agent to serve as our fiduciary - to act in our best interest while making decisions on our behalf. Failing to have a power of attorney can lead to the need for a complicated, lengthy, and costly process to obtain guardianship.

In the end, I want my simple and complex wishes satisfied. With a properly executed power of attorney, the odds are much greater they will be fulfilled. I wish the same for you and your loved ones.

Mitzi Lauderdale is a Certified Financial Planner and associate professor in the Department of Personal Financial Planning at Texas Tech.

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Lauderdale: 5 common myths about powers of attorney