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Create a power of attorney
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March 31, 2000: 8:16 a.m. ET
Preparing one document can save you grief if you find yourself incapacitated
By Staff Writer Jeanne Sahadi
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NEW YORK (CNNfn) - As an adult, you call the shots when it comes to big decisions in your life -- which house to buy, where to invest, how to spend your money.
But whether you're 30 or 80, you're not immune from catastrophic events. Whether it's a car accident, a severe stroke, senility or Alzheimer's, if you become mentally incapacitated you need someone who can act on your behalf.
That's why many estate planning experts recommend you assign power of attorney to someone you trust, instead of leaving it to the courts to decide who should make decisions for you.
"It's an insurance policy and it's cheap," said estate planning attorney Bob Gazzola of Quinn, Racusin & Gazzola Chartered in Washington, D.C.
What you give away
The individual to whom you give powers of attorney is also known as the attorney-in-fact, and he or she is obligated to act as a fiduciary for you.
 That means he or she must act in your best interest at all times and according to your wishes, providing they're reasonable.
"It's nothing more than an agent. When someone says 'Jump,' you say, 'How high?'" Gazzola said.
Since different people in your life have different strengths, you may want to designate one person to serve as your medical proxy and another to handle your finances.
Keep in mind, though, that "you're giving someone permission to sign your name," said Donna Bashaw, a board member of the National Academy of Elder Law Attorneys.
Different types of power
Assigning powers of attorney can take different forms. But in terms of estate planning, there are at least two kinds you should be aware of.
 A "springing power of attorney" only goes into effect under circumstances that you specify, the most typical being when you become incapacitated. And often that means your agent must provide doctors' letters and sometimes court orders to your banker, broker or anyone else he or she deals with on your behalf to prove you are incapable of making decisions yourself.
The other is a more general "durable power of attorney." Generally speaking, you assign a power of attorney and specify "this power will survive my incapacity," said estate planning attorney Roger Levine. Under this form, your named agent does not need to prove you are incapacitated in order to make decisions in your name.
Since the latter is effective immediately, Bashaw generally recommends the springing form for younger, healthy clients, who may not want to risk assigning such strong powers to someone else while they are still capable of caring for themselves. She cites the example of a divorce in which one spouse with the more general durable power can clean out the other's assets.
Whom to pick
Of course, that's a worst-case scenario. And if you or your family suspects a named agent is breaching fiduciary duty, you may sue and revoke the power of attorney.
But the cost and hassle of doing so can be high, and illustrate why it is so important to choose the right person to represent you.
"Some people name agents and don't really think about it," Bashaw said, noting that a spouse or oldest child is often the default choice.
Since your agent takes on a lot of responsibility, you should consider their abilities, not just their status.
In addition to trustworthiness, one of your top criteria should be competence. Can the person balance a checkbook? Deal with your broker? Make sound decisions?
 Willingness is also key. "They've got to know what they're getting into. Potentially it can be a horrendous burden," Gazzola said. What's more, Levine added, "You need someone sympathetic to your desires."
And patience is critical. Say your son thinks a retirement home makes the best sense for you. "But you say not only 'No,' but 'Hell, no,'" Gazzola said. He's got to have the endurance to convince you. Otherwise you may fire him and not appoint someone else, which could be in your worst interests.
You should also consider a person's financial situation. If someone is honest but deep in debt, they make a risky candidate. "It's too easy to take a little money to tide you over. It's a big temptation," Gazzola said.
What it's going to cost you
One of the reasons estate planning experts recommend executing a power of attorney is because it's the easiest and least costly method of insuring your well-being.
Of course, you can do it yourself by picking up a form at the stationery store, signing it and getting it notarized. But to understand all the ramifications, you should talk with a lawyer, who will inform you of the different provisions you can make to insure your wishes are carried out.
If you choose a relative or friend as your agent, you probably won't have to pay them. But if you choose a bank, lawyer or some other outside party, you will have to negotiate compensation, which can range from hourly fees to a percentage of your assets paid annually.
The cost of court
No matter how you set it up, however, the expense of doing so will be less than if you don't name an agent and become incapacitated.
That's when the courts step in and your family starts paying for representation. Levine estimates that in the New York area, for example, the cost of appointing a guardian can be $1,700 or more -- and that's if it's uncontested. And it doesn't include the cost of the guardian's annual visits to court to report on your situation.
But the expense of judges intervening isn't just financial.
"The person you want may not be the person they pick," Levine said. 
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