Estate Planning: How to Protect What’s Yours – While You’re Alive

November 25, 2019 | By Jon Powell, CFP®| Financial Planning

In our world, a great deal of time is spent having discussions over the proper ways to perform estate planning tasks. This can be as simple as establishing wills and beneficiary designations or can involve a network of specialized trusts to ensure your wishes are carried out after you pass away.

However, it is just as important to do proper estate planning for how you’d like your wishes carried out during your life as it is post-mortem. Let’s talk about some of the tools that are available to be deployed to protect what’s yours while you are alive.

Financial Power of Attorney

A financial power of attorney is a legal document that authorizes someone to act as your agent in order to make financial decisions on your behalf, for your benefit.

The scope of the authority you grant a power of attorney can be tailored to your specific needs. For instance, a power of attorney document can be crafted to only allow your designated agent to take certain actions when certain conditions are met.

A common misconception with a power of attorney is that you are ceding your rights to another party and need to rely on good faith that they will not take advantage of you.

While it is extremely imperative that an individual you name as a power of attorney is someone you trust, there is still legal structure that can protect you from a power of attorney acting in bad faith.

A power of attorney owes you a fiduciary level of care. Just as a fiduciary financial advisor has a legal obligation to always act in your best interests, your power of attorney also has a legal obligation to take actions that are solely in your best interest.

Let’s talk about a couple common situations where you may want to have a power of attorney set up:

To protect against incapacity : This is probably the most common reason we see clients setting up a financial power of attorney.

If you become unable to make decisions due to injury, illness, or dementia, having a springing power of attorney at the ready can help ensure your financial obligations are carried out without interruption.

To allow someone to act as a proxy if you will be unavailable: While the ever-growing ubiquity of access to cellular networks and wi-fi has downplayed the need for power of attorneys to be on file when taking extended vacations overseas, there still may be situations where you expect to be unable to direct your financial affairs for a period of weeks or months.

Convenience: Sometimes it just comes down to what makes life a little bit easier. It is not uncommon for investors to just not want to worry about their finances and have a trusted, willing child or sibling to govern their financial affairs for them.

It is important to note that any power of attorney that you’ve put in place is only active while you are alive. The authority granted by a financial power of attorney ceases the moment you pass away.

It is also crucial to realize that a power of attorney must be in place before a debilitating condition like dementia strikes. Once you are deemed to be of ‘unsound mind’ you lose the ability to grant legal instructions like a power of attorney.

Trusted Contacts

As financial fraud has ticked up in recent years, all investors, but particularly seniors, need to exercise enhanced vigilance over their financial assets. In 2017, the SEC gave approval to a rule that encourages account custodians and brokers to try to have their customers name someone as a ‘trusted contact’ on their accounts.

As custodians have begun adopting a trusted contact form to be included with regular account applications, so too have some investment advisors.

Completing a trusted contact form allows the broker/advisor to contact the third-party of your choosing in order to consult them over suspicions of financial exploitation.

They can ask things like “we received an out of character request from Bob, have you been in touch with him recently?” In practice, this acts as a speedbump to delay potentially fraudulent transactions until true verification of intent can be made.

Here’s a practical example of a trusted contact form in use:

Imagine you are on a trans-Atlantic cruise and your advisor receives a suspicious trade order from “you”. They try to obtain some sort of secondary verification, but are unable to make contact with you (you’re in the middle of the ocean!).

Without someone else to go to, they may have little choice but to execute the request as ordered. If a trusted contact is on file, the advisor would have the option of delaying the request on suspicions of fraud and consult with your designated party to help determine the validity of the request.

A trusted contact is not a stand-in for a power of attorney. Your trusted contact is not able to make decisions on your behalf or make inquiries on your accounts.

Healthcare Advance Directive

While not strictly a financial safeguard, an advance healthcare directive often is lumped into the same basket as things like a financial power of attorney. In effect, a healthcare directive offers two types of protection:

  • It establishes a living will that specifies your life-sustaining and end-of-life medical care instructions. If a time were to come when you cannot articulate how you’d like your medical care to continue, this document will allow doctors to carry out your wishes.
  • A healthcare directive can name someone of your choosing to be your healthcare representative. Effectively, this creates a power of attorney specific to medical decisions.
  • In practice, this assists in the facilitation of your living will along with giving medical professionals rights to discuss your conditions with your representative that may otherwise be prohibited by HIIPAA privacy rules.

No one wants to contemplate their own mortality. However, not taking appropriate steps to codify your wishes will leave family members in a heartbreaking situation of being unable to give the authority necessary to carry out your intents.

How Can We Help?

Our hope is that this summary can help clarify the role of various tools that help safeguard your financial well-being during what we hope is a long and prosperous lifetime.

We are happy to talk through the implications of anything discussed here. That being said, professional legal counsel is usually necessary as you sort through the details of a power of attorney or medical directive.

We can help coordinate the necessary professionals and assist in properly communicating your wishes. Always remember, we’re here to help!

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