Saturday, March 29, 2008

What is a “Power of Attorney?”

Texas law allows a person (known as the “principal”) to create various types of “Power of Attorney,” which can take effect immediately or only upon the principal’s injury, illness or incapacity. Using a “power of attorney,” the principal names another individual (known as the “agent” or “attorney in fact”) who will be authorized to handle the principal’s financial affairs or make medical decisions for the principal. These powers of attorney can be as broad, or as limited, as needed in anticipation of future events.

Powers of attorney are one method to protect yourself, and your loved ones, in the event of future injury, illness, or incapacity; in particular, making these decisions in advance can greatly aid you and your family in seeking assistance through Medicare, Medicaid and similar programs.

Careful thought and planning are recommended when making such decisions, however. An agent under a general power of attorney can alter the principal’s existing estate plan in a number of ways, including for example: (a) changing beneficiary designations on insurance policies, bank and brokerage accounts, or retirement plans; (b) selling or transferring the principal’s property without the principal’s prior knowledge; or (c) withdrawing money held in the principal’s accounts without the principal’s prior knowledge. Because of the potential for “abuse” by an agent, many financial institutions and other businesses are often reluctant to recognize a general power of attorney except under very specific circumstances.