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No one is immune from aging or the loss of mental clarity that may come with it. And you're never immune to health crises that may leave you unable to handle the business of your life: paying bills, managing investments, or making key financial decisions.
There are different kinds of powers of attorney, but in estate planning there are two essential types you should know:
- The first is the "springing power of attorney," which only goes into effect under circumstances that you specify, the most typical being when you become incapacitated.
Often that means your agent cannot act until he or she provides doctors' letters and sometimes court orders to prove you are incapable of making decisions for yourself.
- There is also the "durable power of attorney." It is effective immediately, and your agent does not need to prove your incapacity in order to sign your name.
When properly drafted, a durable power of attorney should eliminate the need for any costly future court proceedings to declare the principal incapacitated.
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