Understanding The Power of Attorney and Other Asset Management Tools

Understanding the Power-Of Attorney

and Other Asset Management Tools

By

Marsha Walker Eastwood, Bs.Ed, MSHSVC

One of my favorite financial planning quotes comes from American author Alan Lakein who said, “Planning is bringing the future into the present so that you can do something about it now.”  For procrastinators this is an excellent wake-up call. Nothing is worse than depending on others to assume what you wanted when it comes to the disposition of an estate, whether it be little or much. By planning ahead this helps to alleviate the financial burden on a relative who must step up and bear the burden – not to mention the cost – of settling an estate. Sadly, that last sentence will have the average person thinking about a will, however that document is only one part of creating asset protection and distribution, so let us start with the basics.

The purpose of a will is to ensure that a person’s assets are distributed and/or disposed of in the manner they wish them to be. In other words, who gets what part of the pie and under what conditions if any. As important as a will is, there are other avenues one can pursue that can profoundly affect the future disposition of assets while the owner is still alive. These avenues can and do play a significant role in a financial planning agenda.

Financial planning is all about being proactive when it comes to asset protection. If you recall, the first line of a will begins with, I, John Doe being of sound mind which means that John Doe understood his actions, a reasonable knowledge of where they are, who their family members or persons of trust are, and what and where their possessions are when the will was drafted. The reasoning being if there is a competency issue after John Doe’s death, the contents of the will and other documents of asset protection can be disputed, creating financial chaos for the beneficiaries. In addition to drafting a will there are other designations of financial authority that should be created to protect your assets. Depending on individual needs these may include some type of Power-of-Attorney, and a Transfer Upon Death Deed or Transfer Upon Death Affidavit, which simply transfers ownership of your home to a designated beneficiary upon your death.

A Power-Of Attorney (POA) is a document that can authorize your designee (someone you have the utmost trust in) to make legally binding decisions on your behalf.

There are three types of Power-Of-Attorneys – Durable, Special (which includes Limited), and Contingent. However, there is a caveat regarding any Power-Of -Attorney which provides that you can revoke it at any time and create a new one, and the assignment of responsibilities only applies during your lifetime. Upon your death the Power-Of-Attorney would terminate. At that point, your assets would be managed subject to the terms of your will or trust, provided you have either one. In situations where someone dies without a will, assets are distributed according to the inheritance laws of the state where that person resided.

In order to comprehensively manage and protect assets, one needs to manage and protect their health and wellness if they cannot speak for themselves, so first consideration should be given to creating a Healthcare Power of Attorney. Life is so unpredictable and since none of us knows what fate may befall us – a car accident, a fire, a sudden medical emergency, elective and/or lifesaving surgical procedure or a heretofore manageable medical condition that suddenly requires hospitalization. Most doctors and healthcare facilities will ask for the document that details your wishes for medical treatment and/or the withholding of medical treatment which may result in the end of life, often designated as a DNR – Do Not Resuscitate order. In a signed set of statements detailing those wishes, you will appoint a person you trust to carry out your wishes for healthcare management in the case of a medical emergency where you cannot speak for yourself. In most cases the healthcare facility will make a copy to be included in your medical record, and your designee should also have a copy, as well as any secondary designee who would make the decisions if your primary one was unavailable. Any adult over the age of consent and of sound mind can create this document. In most states the forms are online and just need to be printed and signed.

A Durable Power-Of-Attorney can allow the appointed Attorney-In-Fact the ability to buy, sell, manage, and borrow against any kind of property – real, personal, tangible and intangible – in any way they deem to be in your best interest. Your designee will be able to manage various financial assets including bank accounts, credit cards issued in your name, to receive money, cash checks, open and close bank and security accounts and make deposits, sign contracts and s variety of other commitments as if it were you making these choices. Your Attorney-In-Fact may also be able to operate any business venture you own including hiring and firing of employees, make investment decisions relative to any investments, stocks, bonds options as well as the right to execute proxies and exercise voting rights. They can also enter into real estate transactions including the sale and rental of any properties owned by you as well.

Depending on the circumstances some of the more important responsibilities may include initiating, defending, and settling legal claims and lawsuits and to give releases and indemnities from liability; to hire persons for assistance in legal, tax, bookkeeping, financial, medical, and housekeeping services. The Attorney-In-Fact may also apply for any government, insurance, or Social Security benefit, as well as receive personal, confidential, and medical information on your behalf, and prepare your tax filings for you as if you were filing them yourself.

While all of this may sound overwhelming, think of what could happen to a business or personal portfolio if you became incapacitated for even a brief period of time and there was no one to look out for your best interest. The tasks assigned may seem daunting but remember there are other types of Power-Of-Attorneys that can be assigned as well. You can have more than one special power of attorney, depending on your financial situation. For example, you might set one up for your spouse to allow them authority when managing day to day financial affairs, such as bank accounts. But you might have a separate limited power of attorney for your financial advisor or investment manager to handle your portfolio when you’re unable to. You may also have a limited or event Power-Of-Attorney that covers one life event such as a hot air balloon ride, skydiving, and other perilous adventures that are one-time-only events.

At this point the burning question may be can a Power-Of-Attorney change a will and the answer is yes and no except for a Healthcare Power-Of -Attorney. A will is a distribution of assets upon your death and while the distribution cannot be changed, unless there is a reason to challenge the competency of the deceased when the document was created, the value of the assets can be changed by the Attorney-In-Fact through the purchase and/or sale of real estate purchases or sales, the purchase or sale of stocks and other negotiable items that may have decreased in value over the years and prior to the death of the grantee of the various authorities.  Also, at some point tangible items of value such as vintage furniture or jewelry may have been sold to raise money to purchase stock options. These actions could have a significant impact on the overall value of assets.

There is no doubt that employing the services of a financial planner is a key factor in asset management. It is a wise choice to consider talking to your financial advisor about whether you should have a special or limited power of attorney. You should inform him/her of any appointments regarding Power-Of-Attorney you have made.

It is important to remember that even though a Power-Of-Attorney only applies during your lifetime, you do not have to be ill to execute one. This document goes into effect the minute it is signed and notarized and may be used whenever you are unavailable to make key decisions about your personal or business affairs. Also remember the same rules do not apply in all states so you will want to do due diligence in making certain what your state allows. Regarding financial institutions, you should always seek out the branch manager and inform him/her of your Power-Of-Attorney. Inquire as to whether the institution has any additional requirements of which you and your financial planner should be aware. Many banks have four days to accept or reject it. Additionally, the bank may not require that their own power-of-attorney form be used if the one presented to them is valid and contains proper authority for the agent to conduct banking transactions. Nothing could be worse than your agent being denied access to your accounts.

©Marsha Walker Eastwood

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