Power of Attorney and Health Care Proxy for College Students

This is the time of the year when families send their children off to college. Oftentimes, these kids would study in a college that is located in another state.  If you have a child who has turned 18, you should consider preparing a power of attorney and a health care proxy for her. 

As parents, you may have been caring for your children for many years, but once they turn 18, you no longer have control over their legal affairs or make health care decisions for them in many states.  A typical scenario is when a child gets into a serious accident, a parent would not be able health care decisions for the child any more because the child is now an adult.  In fact, doctors or other health care professionals may even refuse to discuss about your child's medical conditions with you under privacy laws.  

A health care proxy (also known as a health care power of attorney or living will) prepared in advance would authorize a parent to make important health care decisions on behalf of a sick or injured child.  

These concerns are real.  According to statistics, automobile accidents remain a major cause of injuries and hospitalization for young adults and college students.  In addition to health care decisions, if your child becomes disabled temporarily due to illness or injuries, he would also need somebody to take care of his business and personal affairs such as registering a car, withdrawing money from the bank, handling his rental lease, etc. A power of attorney would allow another adult such as a parent, a relative, or a close friend to act as an agent for the disabled child under these circumstances.  

There two types of powers of attorney. A durable power of attorney becomes effective and continues to be effective even after the principal (the person drafting the document) has lost capacity.  

A springing power of attorney takes effect only when the principal's legal capacity has diminished.  One disadvantage of this type of power of attorney is that it may take time to verify that the principal has lost his capacity.

Although a parent typically pays for a child's college tuition, it doesn't mean that the parent would be able to find out about the grades of the student, the attendance record in school, disciplinary matters, etc.  A properly drafted power of attorney would allow the parent to gain access to such information when necessary.  

Finally, exchange study programs and other overseas learning opportunities mean that it is likely that your child may end up spending spend some time abroad.  The rules and regulations in foreign countries vary and can be quite different from the U.S.  A power of attorney and health care proxy would be even more important to protect your child's rights and interests should something happen overseas.

Till Death Do We Part With Our Property, But How?

There are only two things that are certain in life, death and taxes, as the American saying goes. Even at death, one still cannot escape Uncle Sam's taxing power.  Advance planning is important not only for tax purposes but also for an efficient distribution of your assets.   Before we can come up with a plan, we need to first understand how property passes at death.

Broadly speaking, when a person dies, her assets are divided into three categories.  First, assets can be passed down through contractual arrangement to a predesignated beneficiary. Retirement accounts such as 401(k), 403(b), IRA, SEP, KEOGH, etc., belong to this category.  Other assets such as life insurance contracts, annuity contracts, transfer-on-death (TOD) accounts, etc., also have named beneficiaries.  These assets will pass down according to the beneficiary designation without regards to the provisions of our wills unless we specifically name our estate as the beneficiary.

The second category of assets are those that are held in joint tenancy with rights of survivorship (JTWROS).  Like the named beneficiary above, the surviving joint tenant will take property automatically by "operation of law."  For examples, many couples hold their bank accounts as joint tenants with rights of survivorship. Again, these assets are not controlled by our wills.

The last category of assets include everything that is held in our individual names, regardless of what they are or where they are located. Assets held as community property and tenants in common are also in this category.  The significance of this category of these assets is that we can control how and to whom they are distributed.  The legal instrument that we use to distribute these assets is our last will and testament, or our will.  It is important to note that the contracts and JTWROS above take effect first before the provisions of our will are executed. Although the first two groups of assets are not probated, some of them (e.g., retirement accounts) are still considered part of our estate for tax purposes.

It may seem easier to place assets in the first two categories, but your will is the legal tool that can achieve efficiency and tax savings.  For instances, many couples employ tools such as credit shelter trusts and marital trusts in their wills to maximize their tax savings.  In addition to a will, a durable power of attorney and a combined health care power of attorney/living will are also critical legal documents for estate planning and other legal purposes.  A durable power of attorney allows you to designate a legal representative to take care of your financial affairs if you become physically or mentally incapable.  Similarly, a health care power of attorney and a living will will allow you to make health care decisions in advance and also appoint another person to make such decisions for you when you become disabled or sick. 

Three Legal Documents that Most People Should Have

America is a melting pot in its truest sense. People from different countries and background migrate and settle down here. Most immigrants adapt to the American lifestyle and culture well.  However, there are certain things that newcomers may not fully understand - preparing for the unexpected and death is among one of them. To prepare for the uncertain future, three legal documents are critical: a will, a power of attorney and a living will.

Will
A will ensures an orderly disposition of one's assets upon death according to her wishes. Dying without a will means that the person's property is distributed according to the state law rather than her wishes.  A will is an important estate planning tool but it is not only for the rich. Most middle class families require some form of estate planning.  For example, in New Jersey, an estate tax return must be filed if the decedent's gross estate exceeds $675,000, a threshold that can easily be reached with the ever increasing real estate values and also life insurance proceeds. Another overlooked scenario is when a person died in an accident, the value of the person's estate could be increased significantly by monetary compensation.  Without a will, a court will appoint an administrator to oversee the distribute the estate, and a bond must also be posted.

Another important function of a will is to ensure that one's children will be properly cared for if both parents pass away. It is not uncommon for both parents who die in a common accident together.  Without a will, a state family court will take over custody of the minor children after the passing of both parents.  An legal guardian will be appointed to care for the children.  This person may not share the same beliefs, religious and otherwise, as the parents in how to raise the children.  This problem can be avoided with a properly drafted will.

Power of Attorney
When young and healthy, most people don't think about what would happen when they became very sick or disabled.  Who would pay their bills?  Who would handle their assets and regular business transactions?  A power of attorney allows one's spouse, significant other, or another pre-determined person to handle one's assets and affairs when he becomes disabled to do so.  A power of attorney is a written legal authorization to allow another person to handle your business and financial transactions upon disability.  You may give authorization to this person immediately or when you become disable.  You can grant broad general powers or specific authorizations to this person.  You can also cancel a power of attorney at any time without reason. 

Living Will
Despite its name, a "living will" has nothing to do with a will.  A living will is a document that serves one main purpose - to let doctors and other medical professionals know your wishes in terms of medical treatment and other health care matters when you become unable to communicate your wishes due to a medical condition.  One example is when a person becomes a "vegetable" in the hospital due to brain damage, should life-prolonging treatment be withheld or provided?  A living will, also known as "healthcare directive",  that was properly drafted and executed when the person was mentally fit provides specific instructions to the physicians on critical medical decisions like this one.  A person with religious belief can also use a healthcare directive to make sure that healthcare will be provided according to the tenets of his religion.  For example, the Catholic church provides specific healthcare directives for Catholics to follow.  

A living will may also be used as a medical power of attorney or "health proxy".  Like a power of attorney, a health proxy pre-assigns another person, usually a family member, to make medical and healthcare decisions on your behalf when you are not able to.  It is not possible for a person to put down all their medical wishes beforehand in writing. By sharing your beliefs with a family member, and giving legal power to this person to act as your medical power of attorney, you can be sure that your  medical wishes are followed.