Why Having a Will, Financial Power of Attorney, and Healthcare Proxy Matter
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Key Takeaways
When people hear the term estate planning, they often think it only applies to retirees or individuals with substantial wealth. In reality, estate planning is important for nearly every adult. Whether you’re just starting a family, building your career, approaching retirement, or already retired, having the proper documents in place can help ensure your wishes are followed and reduce stress for loved ones during difficult times. In fact, once someone reaches the age of majority in their state of residence, these documents are worth considering in almost any financial situation.
At the foundation of most estate plans are three essential documents: a will, a financial power of attorney, and a healthcare proxy. Each serves a different purpose, but together they help address some of life’s most important “what if” scenarios.
Just as important as creating these documents is reviewing them periodically. A document drafted years ago may no longer reflect your wishes, family situation, or current circumstances. A document that’s technically valid may still be ineffective if it names the wrong people or no longer reflects your current wishes.
The Importance of Having a Will
A will is a legal document that outlines how you would like your assets distributed after your death and identifies the individual responsible for carrying out your wishes, often referred to as an executor or personal representative. Wills are often thought of as the cornerstone of many estate plans.
For parents of minor children, a will is also one of the most important opportunities to express who you would want to serve as your child’s guardians if something were to happen to you. Even for individuals without minor children, a will provides important direction regarding the distribution of assets and administration of an estate.
Many people mistakenly believe that their assets will automatically pass according to their wishes. However, without a valid will, state laws generally determine how assets are distributed, regardless of what you may have intended. It’s also important to remember that certain assets, such as retirement accounts and life insurance policies, generally pass according to beneficiary designations rather than instructions in a will. Reviewing beneficiary designations periodically is therefore an important part of any estate planning review
Having a will can help:
- Provide clear instructions regarding asset distribution
- Reduce uncertainty for surviving family members
- Document guardian preferences for minor children
- Minimize the likelihood of family disputes
- Ensure your wishes are formally recorded and legally recognized
What could go wrong without a will or with an outdated one?
- State law may determine who receives your assets
- Intended beneficiaries could be unintentionally excluded
- Family disagreements may become more likely
- Guardianship decisions for minor children may be left to the courts
- An outdated will may no longer reflect important life changes such as marriage, divorce, births, deaths, or significant financial changes
The Importance of a Financial Power of Attorney
While a will addresses what happens after death, a financial power of attorney (POA) focuses on what happens during your lifetime if you become unable to manage your own affairs.
A financial POA allows you to appoint a trusted individual to act on your behalf for financial matters, such as paying bills, managing accounts, handling insurance matters, and communicating with financial institutions. One of the most common misconceptions in estate planning is that a spouse or adult child can automatically step in and manage finances if someone becomes incapacitated. In many situations, financial institutions cannot accept instructions from family members who are not named on the account/policy without legal preauthorization given from a financial POA.
When creating a financial power of attorney, individuals may encounter the terms durable and springing. A durable power of attorney generally becomes effective as outlined in the document and continues to remain in effect if the individual later becomes incapacitated. A springing power of attorney, on the other hand, typically becomes effective only after a specified event occurs, such as a determination of incapacity. While a springing power of attorney may appeal to those who prefer not to grant authority immediately, proving that the triggering event has occurred can sometimes create delays when timely financial decisions need to be made.
A financial POA can help:
- Ensure bills and expenses continue to be paid
- Allow financial matters to be handled without interruption
- Provide continuity during illness or incapacity
- Avoid unnecessary delays when important decisions must be made
- Potentially reduce the need for court involvement
What could go wrong without a financial power of attorney or with an outdated one?
- Loved ones may be unable to access accounts or manage financial affairs
- Important financial obligations could be delayed
- Family members may need to seek court-appointed authority to act on your behalf
- An outdated POA may name someone who is no longer the best choice to serve or may not reflect your current wishes and circumstances
The Importance of a Healthcare Proxy
A healthcare proxy is a document that allows you to designate someone you trust to make medical decisions on your behalf if you are unable to communicate or make decisions for yourself.
Healthcare decisions can be highly personal, and during a medical crisis, family members may be forced to make difficult choices under emotional circumstances or shortened timelines. A healthcare proxy helps ensure that someone you trust has the authority to advocate for your preferences. The person you appoint should understand your values, priorities, and healthcare wishes and be willing to communicate with medical providers when necessary.
Individuals may encounter terms such as durable and springing when discussing incapacity planning documents. While these concepts are often associated with financial powers of attorney, healthcare proxies generally become effective only when an individual is unable to make or communicate healthcare decisions. Understanding when an appointed healthcare agent may act can help ensure the document functions as intended during a medical emergency.
A healthcare proxy can help:
- Ensure someone you trust can make medical decisions on your behalf
- Provide guidance during emergencies or periods of incapacity
- Reduce confusion among family members and healthcare providers
- Help ensure medical decisions align with your personal wishes
- Relieve loved ones from uncertainty during stressful situations
What could go wrong without a healthcare proxy or with an outdated one?
- Family members may disagree about medical decisions
- Healthcare providers may not know who should speak on your behalf
- Important decisions could become more complicated during a crisis
- An outdated healthcare proxy may name someone who is unavailable, no longer appropriate for the role, or no longer aligned with your wishes
Key Takeaways and Considerations
- Have a will, financial power of attorney, and healthcare proxy
- Review estate documents and beneficiary designations following major life events such as marriage, divorce, the birth of a child, the death of a family member, or a move to a new state.
- Confirm that the individuals named are still the right choices and willing to serve
- Make sure trusted family members know where important documents are located
- Work with qualified estate planning attorneys to draft and update documents based on your state’s laws and your personal goals
Summary
Estate planning is often viewed as something to address later in life, but the reality is that a will, financial power of attorney, and healthcare proxy are foundational documents that can benefit almost any adult. Importantly, while a will addresses what happens after death, a financial power of attorney and healthcare proxy are designed to help protect you during your lifetime if you’re unable to make financial or medical decisions for yourself. Together, they help ensure your wishes are carried out, provide trusted individuals with the authority to act on your behalf when needed, and can reduce unnecessary stress, delays, and uncertainty for loved ones during difficult times. The best estate plan isn’t necessarily the most complex— it’s the one that’s in place, up to date, and aligned with your goals.
Estate planning is essential to a comprehensive financial plan, but good financial planning isn’t a “one size fits all” experience. If you’re thinking about how this applies to your own situation, you’re already at the point where having a conversation makes sense. That’s where partnering with our practice begins:
Clearfront Advisory does not provide legal or tax advice. This article is for educational purposes only, and individuals should consult qualified legal and tax professionals regarding their specific circumstances.
This post was researched and written by the author with the assistance of AI writing tools. All content reflects the author’s own views, has been independently verified, and has been reviewed and approved prior to publication.
