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.
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 you are younger. Then you may want to update it to an immediate power as you get older and 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).
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.
Once your financial power of attorney document is signed, consider the following steps:
Sometimes the 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!