Aging Options

Choosing your financial power of attorney

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While we often focus on having a Power of Attorney in regards to aging, the fact is that a Power of Attorney is an assurance that you always have someone whose duty it is to act with your best interests in mind should you be unable to do so, regardless of your age

You should have a Power of Attorney as soon as you reach an age in which you have legal or financial obligations you may not be able to meet for one reason or another.  There are many reasons you may suddenly be unable to care for your financial affairs.  An accident, a health crisis, or struggles with cognitive function such as may occur with Alzheimer’s all may force you to rely on someone else taking control of your financial life.  A good example for this area is the military personnel who may suddenly be called away on short notice.

In estate planning, there are six kinds of Financial Powers of Attorney.  You can choose to have a springing Power of Attorney, which only goes into effect if a specific event occurs such as incapacitation.  Usually, to go into effect, a doctor or court must determine you are incapable of making decisions for yourself.  The other side of the springing Power of Attorney is the immediate Power of Attorney which goes into effect at signing.  A Durable Power of Attorney remains in effect even if you become mentally incompetent.  Whereas a non-durable Power of Attorney becomes ineffective at incapacitation.  Finally, you can have a limited Power of Attorney which is in effect for a specific event or time-frame or you can choose to make your Power of Attorney be effective forever.

A lawyer can help you determine which Power of Attorney you need but to incentivize making a choice, consider this:  If you do not choose a Power of Attorney (or you choose the wrong Power of Attorney) and you become incapacitated the court will appoint a guardian.  An unwanted guardianship is an expensive proposition that takes your ability to make your own choices out of your hands and places that responsibility upon the shoulders of a judicial system that will dictate their own ethos and morality upon your life.

The legal benefit of choosing a Durable Power of Attorney is that unlike a joint tenancy bank account, your attorney-in-fact is required by law to use your assets for your benefit and not for their own use and allows you to continue to control the disposition of your assets through your will.

The disadvantage of a Durable Power of Attorney is that it can be abused.  There is no court supervision to ensure that the person you trusted to care for your financial well-being will do so.

A lot of people choose to create the legal framework for their Financial Power of Attorney at the same time as their Medical Power of Attorney, usually as part of their estate planning.  These two documents do not have to select the same person but whoever you choose for either of these must be able to work cooperatively with each other.

Choosing the person to act as your agent (also known as an attorney-in-fact) is a serious decision that can impact your life and the lives of your family members.  How serious is serious?  Consider you are giving someone else carte blanche to legally make financial and legal decisions that will ultimately impact you and your financial assets.

Whoever you choose to give your Financial Power of Attorney to may have fairly broad responsibilities or a narrow scope depending on how much power you want to give them.  Some of the responsibilities include:

  • Handling investments including property, stocks and bonds.
  • Claiming, selling or transferring property on your behalf.
  • Handling taxes or small business operations.
  • Paying your day-to-day expenses.
  • Managing your mortgage payments, retirement funds and insurance.
  • Handling any government benefits, interest payments and bank transactions
  • Hiring legal counsel to represent you.

Deciding who to trust for this important role can be very tough.  I wrote about this for the Medical Power of Attorney article I wrote earlier this week and much of it remains the same or very similar.  You can name a spouse, other relative, friend or even a nonprofit agency to fulfill this role.  While you are at it, you should always consider assigning an alternative in case your initial choice is unable or unwilling to serve.

Someone you like:  Let’s face it; this person is going to know a lot of personal information about you.  They’ll be in charge of your assets, something most people consider only slightly more private than their own being.

Location:  The farther away your agent lives, the more unlikely it is that financial decisions or transactions will be met in a timely manner.  Someone who resides close by is also more likely to understand local and state laws relative to any business handlings you may have.

Financial Understanding:  Because you have the ability to choose the range of financial decisions your agent may have, you have the ability to assign duties that person is most capable of understanding.  For instance, depending upon the complexity of your estate, you can assign one person to handle rental properties, another to handle your investment accounts and another to file taxes and so on or just assign one person with a good deal of common sense and the ability to know when to ask a financial expert for help to handle everything.  Avoid people who have had previous financial or legal problems.

Sense of loyalty:  Your choices will be carried out in the face of emotional stress and turmoil.  Choose someone who has your best interests at heart and has no personal grudges against any of your family members.  Don’t grant any power to an agent that you don’t feel comfortable giving and remember that you are essentially trusting your life to them.

Willingness to serve:  Acting as someone’s Financial Power of Attorney can be time consuming.  Make sure the person you select is not only able to serve in the function you have assigned him or her but is also capable of setting aside the time to do so or use language in the Power of Attorney to require the hiring of a professional to help balance the load.  (On a separate note, if you are going to require the hiring of someone you need to make provisions to make that possible.)  If you choose your adult children, consider splitting the duties to match their abilities.  A geriatric care manager can help with an assessment to provide some direction on what kind of care may be needed in the future.

Assertive:  There’s nothing like family or in some cases your future self to get in the way of your own wishes.  It’s important that the person or people you’ve selected are able to stand up in the face of opposition from family members and potentially you.  In cases of cognitive decline, it’s not unusual for an individual to become oppositional, making it difficult for the attorney-in-fact to address your needs.  A formal family meeting can be used to discuss the obligations of the person or people you have selected.  This is a good time to consider hiring an outside mediator such as a lawyer or Geriatric Care manager to help facilitate the meeting.  You can use the family meeting as an opportunity to talk about your wishes such as protecting your assets, avoiding becoming a burden on others and avoiding institutional care.

Age:  Anyone you choose must be at least the age of majority in your state.  Ideally, you’ll select someone who is a great deal younger than you.  You want someone who can handle the responsibilities you are going to assign them for a period of time and that period may be a lot longer than you expect so you want someone whose own health will not eventually downslide to the point that they cannot care for either you or themselves.  See this story.  Planning ahead-the power of attorney.

Trustworthy:  Have you already had opportunity to see this person in action so to speak?  If someone’s past actions have already proven they are trustworthy and reliable, highly ethical and prudent, you’re halfway there.  Your money and your agent’s money must always be kept separate and your agent shouldn’t have a conflict of interest such as this story about a niece in the UK who used her powers as Attorney-in Fact to invest in her own reptile breeding business.

An estate planning attorney can help you with detailed discussions about the merits of choosing an individual and make recommendations about any limits to your agent’s powers such as prohibitions against signing a voluntary arbitration agreement for entry into an assisted living or skilled nursing facility.

Additional stories that may be of interest:

Choosing your Medical Power of Attorney

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