Today we focus on one of the common "tools" in your estate planning kit for dealing with possible issues of incapacity. If you are reviewing your estate plans, or simply covering the "what-ifs" with your family, here are a few options to consider regarding this important financial planning technique. David Stubblefield, senior financial planner at The Commerce Trust Company, takes a moment to discuss why it's best to think ahead.
Q. I am reviewing my estate planning needs and it's been suggested that I have a durable power of attorney set up in advance. What is a durable power of attorney?
A. There are several types of "power of attorneys," but we will focus on the most robust, the durable power of attorney. A durable power of attorney grants another person the legal authority to act on your behalf in a general or limited capacity. The general and limited distinctions are important to understand. A general durable power of attorney gives the person you choose, also known as the agent, the power to manage all of your assets and financial affairs while you are alive. A limited power of attorney, on the other hand, allows you to give only specific powers to the agent, such as selling property, investing assets or making healthcare decisions.
Q. Regarding healthcare decisions, is there a special power of attorney document?
A. Yes, it's the healthcare power of attorney, which is one of the limited power of attorney documents. This document prevents family conflicts and possible court intervention should you become unable to make your own healthcare decisions or express your medical treatment preferences. If your condition changes, you can revoke the appointee's privilege at any time. Parents of college-aged children at out-of-state schools also find the healthcare power of attorney helpful if a medical emergency arises.
Q. What do most people use the power of attorney for?
A. The main reason to put a power of attorney in place as we get older is to help your family reduce any financial vulnerability that might arise if you become incapacitated and can't handle your own business affairs. "Incapacitated" is defined as loss of mental competency, which prevents you from entering into contracts of any kind. You can preempt an unwanted lapse in your financial affairs by thinking ahead.
Q. Who typically serves as a power of attorney?
A. Your choice of agent is critical. Besides the obvious in retaining a capable person you can trust, you might prefer someone who is philosophically aligned with your perspective on handling assets and property. Ideally, people choose agents who may be younger in age than themselves, people who would likely welcome the assignment, usually a spouse, son or daughter, or other close relative who is financially stable in their own right. However, your chosen agent can be anyone as long as they have attained the age of majority in your state. It's also wise to name a successor agent or two in case someone is unable or unwilling to serve when needed for your power of attorney.
Q. Seems like the power of attorney grants absolute control over my business affairs if I am incapacitated. What if my incapacity is temporary and I recover?
A. You are correct, a power of attorney is a serious responsibility for the agent when it has to be invoked. But remember that the appointment may be for a set period of time and can be revoked by you at any time, providing you still have the legal capacity to do so. A power of attorney always ends at death.
Q. What would happen if I did not set up a power of attorney?
A. Unless you have formally designated someone to carry on your financial affairs, a family member or friend will have to ask the court to appoint a guardian. This procedure can potentially be a hardship for your family. It is open to public scrutiny and can be embarrassing to have your infirmities disclosed to others. On top of this, it is certainly time-consuming and expensive. The court-appointed guardian may not even have the same robust powers as your duly appointed agent would have had.
Q. How hard is it to get a power of attorney document set up?
A. Not hard at all. It is usually more efficient to arrange your power of attorney at the same time you do your other estate planning. By itself, a durable power of attorney is usually only a two- or three-page document. You may be able to order a standard template form online from your state government website or purchase a fill-in-the-blank form at a business office or stationery store. If not, your state may publish a printed form in its statute books that you can copy. If you choose to contact a local estate planning attorney, the fee for drawing up a durable power of attorney would be nominal. You may have to have your signature notarized depending upon your state of residency.
Q. Where should I keep the paperwork?
A. If you retained an attorney, keep a copy on file with him or her, one in a safe place at your residence, one with your insurance rep and one with your agent. Communicate to family members who your designated agent is and make sure the agent is willing to serve. That way the transition made to having your agent pay bills, write checks, make deposits, sell assets, sign your tax returns, or otherwise conduct business, will be less contentious.
About the Author
David is a financial planner with Commerce Trust Company. He is a member of the financial advisory services team, a dedicated financial planning practice within Commerce Trust that provides objective financial advice to clients. Following a thorough assessment of a client's unique situation and thoughts regarding wealth, David develops holistic and coordinated plans to help clients meet their short-term and long-term goals as well as take full advantage of various planning, tax, and investment strategies along the way. His areas of focus include planning for financial independence, retirement, divorce, executive compensation, estate preservation, and business succession. David joined Commerce in 1995 and has held positions in private banking, credit analysis, commercial business development, and retail sales. David received his bachelor of science degree in business administration from Southeast Missouri State University. He holds both the CERTIFIED FINANCIAL PLANNER® and Certified Divorce Financial Analyst® designations. Additionally, David is a member of the Financial Planning Association and the Institute for Divorce Financial Analysts.
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