Longing for the things we want in life often conjures up dreams of finding a magic lamp with a genie inside who’ll grant us three wishes. Of course, reality is much more complicated than that. As we age, we need to include other people in our financial planning, including someone who can step in if we’re unable to care for ourselves. Before diving into some general guidelines on this, please note that I recommend you speak with your own legal counsel before determining the best course of action for your specific situation.
No one likes to dwell on what life will look like if we become incapacitated and need help making medical and financial decisions. However, it’s an important part of your complete financial plan – you need to take care of it while you’re healthy, and before you truly need it. Having a power of attorney in place will ensure your wishes are known and delays or conflicts are avoided. Believe me, this isn’t something you want to be determined by a court of law.
Protect Yourself Through a Power of Attorney
A general power of attorney is a legal document that gives one person – called an agent – the power to manage your legal, financial or medical affairs. General powers of attorney can cover a wide range of situations, but they expire immediately if you become incapacitated.
That’s why it’s essential to have a durable power of attorney in place. This document names an agent who can take over your finances in case of a medical emergency, cognitive decline or other situations where you’re unable to make decisions. The agreement is effective immediately after you sign it, giving your agent the authority to:
- access your banking and investment accounts
- pay bills
- file tax returns
- apply for government benefits
- liquidate assets, including your home and personal property
- sign documents on your behalf
It’s important to note that you can limit your agent’s authority – that’s a discussion to have with your attorney.
If you’re concerned about giving someone the authority to act on your behalf while you’re healthy and able to do things on your own, consider a springing durable power of attorney. This only goes into effect if a certain medical condition or specified event occurs. For example, it may require a physician to certify your condition prior to your agent having access to your accounts. This arrangement allows you to remain in control of your assets and only kicks in if you need it and the proper conditions are met.
Stay Smart When Selecting an Agent
One of the most difficult decisions during this process is deciding who’ll be your agent. Your first instinct might be to name one of your children or a close family member. When selecting an agent, it’s important to have absolute trust in the individual.
Problems sometimes arise when a parent with multiple children picks one as their agent. A child might not be the best fiduciary fit for several reasons:
- it’s hard for them to be completely objective
- they disagree with siblings over family issues
- they don’t have the life experience or time to make critical decisions
As you consider who’ll serve as your agent, ask yourself, “Am I comfortable handing over my checkbook to this person for two months and with no other instruction have them pay my bills?” If the answer is no, then maybe you should explore other options.
A professional agent can be an impartial alternative. This type of agent will be experienced at managing money and property, so your assets will be accounted for and your wishes will be carried out accordingly and with oversight. A professional agent can be a bank with trust powers, a certified public accountant or a trust company. You might also check with the attorney drafting your estate planning documents for recommendations.
Communicate Your Plan
Once you choose your agent, be sure to talk to them! If it’s a family member or friend, let them know you’ve selected them, explain what the role entails and let them know your wishes. It’s important to share your plan through documentation and verbally. All documents should be signed and placed in an agreed-upon location that you can both access.
As you can see, it doesn’t take a magic lamp and a genie to make your wishes come true. A few simple steps can give you peace of mind today and save your loved ones the hardship and heartache of making financial and medical decisions on their own.