A Frustrating Requirement You Need to Understand

We head to the pantry this month in our Financial Open House tour, and if you are like me, you have a place for everything. Your pantry is organized the way you like it therefore you don’t really think much about it until you need to go in there for something. But when it comes to our financial documents, we can’t just “set it and forget it” and only come back to it when we need them. By then it might be too late…

TO EACH HIS OWN

Normally, when you hear or say the phrase “to each his own” you are likely shrugging and recognizing that things can be different for different people. And it’s no big deal. But when it applies to your financial power of attorney document and I say “to each his own,” I am referring to the fact that each institution (bank, IRA custodian, investment company, etc.) can have their own hoops to jump through in order for you to authorize another person to make financial decisions on your accounts. For example, the bank might require a copy of your financial power of attorney document, the IRA custodian might have their own form to be filled out instead, and the investment company might want both. Plus, many places are now requiring a notarized statement in addition if the financial power of attorney document is more than five years old.

You may be thinking, “Wait a minute, what? I thought I was done once I had my financial power of attorney document drafted and signed at the attorney’s office!”  It is true that you won’t need to provide financial power of attorney instructions unless they are needed, but do you know when that might (or might not) be? Best practice, as I’ve outlined in my book, is to get your financial agent authorization noted on each account or at least on your main accounts before it is ever needed. The last thing your spouse or family member (aka financial agent) is going to want to hear when contacting the bank, IRA account, etc. on your behalf is “I’m sorry you’re not authorized to make any transactions. Please provide XYZ so we can get that request processed.” Any delay during a time of crisis will only add more stress to an already stressful situation.

THE FINANCIAL POWER OF ATTORNEY DOCUMENT

Your financial power of attorney document, often called a Durable General Power of Attorney, is your legal wishes in writing about who you authorize to make financial decisions for you when you are unable. It can be set up to be a springing or immediate power. A springing power “springs” into action only upon incapacity (usually requiring documentation by physician(s)) whereas an immediate power is much broader as it authorizes financial power immediately, even if you’re not incapacitated. Sometimes a springing power may be prudent when we are younger with an update to an immediate power as we get older when unexpected health events/accidents are more likely to occur and you want to avoid the physician documentation requirement. The differences and recommendations are best discussed with your estate planning attorney as state laws can also differ as well as your circumstances and wishes.

It is important to clarify that financial powers are also spelled out in a trust document. So, if you have a trust in place AND you have re-titled your non-retirement accounts to be held in the name of the trust, then there is no need to supply the financial power of attorney as an additional document, since it is already clarified within the trust document itself. This is one more reason to be sure you “fund your trust” (aka re-title your non-retirement assets to be held in the name of the trust) as we discussed in last month’s blog about estate planning homework. If you do have a trust, you would still need the financial power of attorney to be noted on file for IRAs as well as life insurance and some annuities (if insurance/annuities are not held in the name of a trust).

WHY POWER OF ATTORNEY DOCUMENTS ARE SO CRUCIAL

Unfortunately, a local couple in their 40s just recently experienced why power of attorney documents are so crucial to have in place. They met with an estate planning attorney to begin the process of getting their estate planning documents drafted. But before they could meet again to sign everything, the husband had a traumatic brain injury. The wife was forced to go to court in order to be appointed her husband’s guardian (for health care purposes) and to also go through the intensive paperwork conservatorship process (for financial purposes). Now, she has to give the court an annual accounting of what she did for health care throughout the year for her “ward” (i.e. husband), and she must petition the court for approval of financial transactions. This all could have been prevented if the health care and financial powers of attorney documents had been signed.

TIPS FOR ONCE YOUR FINANCIAL POWER OF ATTORNEY IS DRAFTED

Once your financial power of attorney document is signed, here are important things to think about doing:

• Give a copy to your financial agent and discuss your wishes.
• Consider checking with your main institutions to understand their requirements for getting a financial power of attorney on file for your accounts and then add that authorization before it is ever needed.
• Compile an outline of your estate planning documents showing at a glance who serves in what capacity (check out my free resources for a fill in the blank version).
• For out of town family, look at ways to compile your wishes/documents using resources like www.Everplans.com (a website I provide on a complimentary basis to all of my clients)
• Put together what is fondly known as a “To Go” bag that you keep with you when you travel. I use an accordion file with a rubber band closure that I keep in my car, for example. It’s helpful to include a copy of your health care and financial powers of attorney, a list of medications/health conditions, a pad of paper/pen to take notes and an ICE (In Case of Emergency) list of people to contact (family, doctors, etc.).

Sometimes this topic of planning for the unexpected can feel morbid or overwhelming. But in my past 20 years of experience, we all usually come out ahead when we follow that old adage: plan for the worst and expect the best. You have to decide for yourself what you want to take action on…to each his own!

What experiences have you had with financial powers of attorney? Have you thought about the springing vs immediate options? What motivated you to get your estate planning documents drafted initially? Share your thoughts and questions.

Let’s Have a Conversation!