Estate planning involves preparing for an individual’s death, but just as importantly, it also addresses decisions and arrangements made during their lifetime. In Ohio, individuals planning for potential incapacity often consider two primary legal tools: Power of Attorney (POA) documents and guardianships. Both serve to authorize someone to make decisions on behalf of another but differ significantly in their establishment, scope and implications.
Power of Attorney (POA)
A POA is a legal document that allows a competent adult (the principal) to designate another person (the agent or attorney-in-fact) to act on their behalf. This authority can be broad or limited to specific matters and can take effect immediately or upon the principal’s incapacitation. In Ohio, two common types of POAs are:
- Healthcare Power of Attorney: Empowers the agent to make medical decisions for the principal when they are unable to do so.
- Durable Financial Power of Attorney: Grants the agent authority over the principal’s financial affairs, such as managing bank accounts, paying bills and handling investments.
Additionally, there are two main types of POAs in Ohio:
- Immediate POA – This type of POA becomes effective as soon as it is signed and notarized. The agent can begin making financial decisions on behalf of the principal right away.
- Springing POA – This type of POA only becomes effective upon the occurrence of a specific event, typically when the principal is determined to be incapacitated. The document should clearly define how incapacity is determined, often requiring certification from a physician.
Both types allow an appointed agent to handle financial matters, but a springing POA provides an extra layer of protection by ensuring the agent does not have power until it’s truly needed.
However, there are also cons to the springing POA, it can often take time for a physician to determine capacity making it difficult to make decisions in a crisis.
Establishing a POA is generally straightforward and cost-effective. It allows the principal to choose their agent and specify the powers granted. Importantly, the principal must be of sound mind when executing a POA, and they can revoke it at any time, provided they remain competent. It is recommended to name alternate POAs in case the initial POAs named are unable to serve for any reason. Without an alternate, the individual will need to obtain a Guardian.
Guardianship
Guardianship is a court-supervised process where an individual (the guardian) is appointed to make decisions for another person (the ward) who is deemed incapable of managing their personal or financial affairs due to incapacity. Unlike a POA, guardianship involves a legal proceeding in probate court, requiring evidence of the individual’s incompetence. The court oversees the guardian’s actions, necessitating regular reporting and, in some cases, prior approval for certain decisions.
Guardianships can be more restrictive and costly than POAs. They may be necessary when an individual has not executed a POA and becomes incapacitated, or when there’s a need for court supervision due to concerns about the individual’s well-being or potential financial exploitation. It’s important to note that a guardian cannot create a POA or a will on behalf of the ward; these rights remain personal to the individual.
There are two different guardian types in Ohio:
- Guardian of the Person is appointed for healthcare decisions.
- Guardian of the Estate is appointed for financial decisions.
Key Differences
- Establishment: A POA is created voluntarily by a competent individual without court involvement, while guardianship requires a court proceeding to declare an individual incompetent and appoint a guardian.
- Control: With a POA, the principal retains more control by selecting their agent and defining the scope of authority. In guardianship, the court determines the guardian and the extent of their powers.
- Cost and Time: POAs are typically less expensive and quicker to establish. Guardianships involve court fees, attorney costs, and ongoing reporting obligations, making them more time-consuming and costly.
- Public Record and Appointment: All assets belong to an individual with a guardian are submitted and approved by the court on a regular basis. There must be inventory and accountings filed which are all potentially public record. If an individual does not create a POA while they have capacity, the court might not appoint the person the individual would have wanted. The Principal loses any prior control.
Conclusion
While both POAs and guardianships serve to assist individuals who cannot manage their affairs, establishing a POA in advance is often preferable due to its simplicity, cost-effectiveness, and the autonomy it affords the principal. However, guardianship may be necessary in situations where no POA exists, the individual is already incapacitated, or court oversight is deemed beneficial. So not only is it necessary to create an estate plan for after death, but it is just as important to create a plan for during life.
Next Steps
With offices in Cleveland and Columbus, KJK’s estate planning attorneys are dedicated to providing comprehensive guidance tailored to your unique needs. To learn more or schedule a consultation, please contact an attorney in our Estate Planning practice group:
- Cleveland Office: 216.696.8700
- Columbus Office: 614.427.5731
