Who Do You Trust to Make Financial Decisions for You?
Updated: Aug 9
Trust, years to build, seconds to break, and forever to rebuild. This is especially true when it comes to our money. Even between spouses or parents and their own children, we all have a difficult time trusting each other with money. During my years helping clients with their estate planning, it is often easier for them to decide who will make healthcare decisions than to decide who they trust with their money. Who do you trust to make financial decisions for you?
Who should you trust to manage your financial well being when you are no longer able to do so? A power of attorney (POA), otherwise known as an agent to your principal (or attorney in fact), has the legal authority to represent and make decisions on your behalf. What characteristics should you look for when designating a power of attorney? No matter what type of power of attorney you seek to arrange, your potential agent must be a person you deem to be trustworthy and honorable to conduct your affairs in your best interest.
Often the principal who designates the POA may prefer to choose a family member such as a spouse or adult child. If a family member is unable or unwilling to act when needed you can name a trusted friend or retain professional representation to ensure your interests are well looked after. Some people choose to have co-agents or name a secondary agent in the event another might pre-decease you.
Stipulations regarding the selection of a POA are minimal. Your chosen power of attorney must meet two legal thresholds; be an adult and not be incapacitated. There are no special qualifications regarding financial acumen or legal knowledge, and in fact, integrity is considered the most important attribute when selecting your agent.
Some questions to consider beyond your basic level of trust with this person(s) include:
How does this person manage their own legal and financial responsibilities? Are they financially responsible? Do they lead a steady life? Are they good at making decisions under pressure?
Does this person know how you think? How you make decisions? Do they know your values and priorities? You want some who would "know" what you would do.
Will the person you select charge you a fee for their service? Generally, family members will not but, if you choose professional representation such as a financial planner or an attorney, there is usually a fee associated with their expertise and service.
Is the person you want to represent you willing to do so? Becoming an agent is a big responsibility to accept, and for many reasons, the person you want may not agree to serve as your agent.
Your power of attorney agent can have broad or limited legal authority to make decisions and transactions on your behalf about your property, finances, and medical care. The agent’s power is derived through your permissions, and if you are dissatisfied with your agent, you can terminate the POA/agent relationship and create a new one. Your power of attorney must comply with state law. When you work with us, we will make sure yours complies with all applicable laws.
There are a few misconceptions about the power of attorney.
Incapacity - You or someone else can create a POA on your behalf after you are incapacitated. Unfortunately, if you are incapacitated, it is too late to make a POA. For your power of attorney to be valid, your agent must be appointed before you become incapacitated through illness or disability. If you do not have your POA agent legally in place and are unable to manage your affairs, it may become necessary for a court to appoint someone to act on your behalf. People appointed to represent your interests in this manner are referred to as guardians, conservators, or committees, depending on your local state law. To avoid someone making decisions for you who you may not have chosen, it is imperative to have the proper power of attorney legally in place before you become incapacitated.
Durable - So I only need a power of attorney if I am going to be incapacitated? While you can structure your power of attorney to function in such a manner (springing power of attorney), we recommend a durable power of attorney. My problem with a springing power of attorney is that before some entities (mainly banks and other financial institutions) accept that your agent can act under the authority of the springing POA, your incapacity needs to be determined by court order and that can be expensive and extremely time-consuming. The durable power of attorney is effective immediately even if you are not incapacitated. This permits your agent to serve under any circumstance when he or she may be needed. For example, if you go on vacation and a financial transaction needs to be done but you are not available the agent can step in on your behalf and conduct the transaction in your best interest. Some people get concerned about this form of POA but I advise them that with this type of POA they are alert and able to check on the agent, unlike with the springing POA where they are incapacitated and have no idea what the agent may be doing with their money. As I stated earlier, trust is very very important for POAs.
Fiduciary Obligation - Another misconception is that your POA agent can make whatever financial decisions he or she wants to about your estate and that all power of attorney documents are the same. Your selected agent, by law, has an overriding obligation known as a fiduciary obligation to make decisions in your best interests. This responsibility is why it is imperative to choose a trustworthy agent as it can help avoid challenges to and litigation of your estate. You must have full confidence in the actions your agent will take on your behalf. You can appoint different agents for different POA document functions. We can help you figure out which powers should be given to particular agents. For example, you may want a different agent to handle real estate transactions on your behalf.
After Death – Another misconception is that your agent will handle your affairs after you die. That is not true either. The simplest way to remember this is, “the power of attorney dies when you die.” In other words, the agent’s powers terminate upon your death. If you have created a Will, those duties will be assumed by the Personal Representative (also known as the Executor or Administrator) you named in your Will. If you do not have Will, the court will appoint someone to serve in that capacity.
Selecting an agent and preparing a financial power of attorney is an important part of your overall plan. It would be our pleasure to assist you. Give us a call at 301.892.2713 or click here for an easy and convenient way to schedule your consultation. For your safety and ours, we are still taking precautions and limiting initial consultations to videoconferencing. We know it is not the best way to begin a long-term relationship, but it is the safest. We look forward to hearing from you!
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