In our previous article we explored a few issues around estate planning. We reviewed some of the basic concepts around issues like time, beneficiaries, ownership, taxation, and the complexity that family can (and often does) bring. Feel free to review those ideas HERE.
But one of the big issues that we often find neglected surrounds the idea of control. Quite simply, who is in charge and what can they do or not do. I’m going to divide this very basic and incomplete discussion into two sections: individuals and entities.
We have all had the experience of trying to call the bank or cable company (if you ever actually get to speak to a real person) to make a change or ask a question – only to find our name was not listed as the primary account holder. In many cases, this ends your ability to make progress. Now imagine that your spouse, parent or even your “almost adult” (over 18) child is incapacitated or just out of the country. If something needs to get done and they are not available or able to do it, you may be really stuck.
This is where the durable power of attorney (POA) comes in. This document authorizes one person to act for another in the case they are unavailable or incapacitated. It is typically standardized for the state you live in so that normal people like bank tellers, investment advisors and other account representatives know what they are seeing is correct. The only way this works is if the person who gives this authority (the principal) is willing and mentally capable of signing the document. This means POAs need to be completed while things are “normal.”
Unfortunately, POAs do have limitations. First, they immediately expire at the death of the principal. And second, the principal can revoke the POA at any time and for any reason. In some cases, the right to revoke is great – if the person you have given the right to act for you starts acting irresponsibly, you would want the right to end their authority. But if you are suffering from dementia and you are having a bad day – you may still have the ability to revoke a POA. This could obviously create some issues.
Many of you either have a trust or have thought about using one to help manage your assets and estate. Remember – a trust is its own legal entity. The people who are in control of this entity are called trustees or co-trustees. Trust documents already contain language that details who can act on its behalf in the case the trustee(s) passes away or becomes incapacitated (known as successor trustees). Also remember trusts/trustees don’t have authority over accounts or assets that are still in your name. This means you may need a POA even if you have a trust.
The purpose of this article is to draw your attention to some important ideas that need to be considered and addressed before times of trouble arise. And while we are not attorneys offering legal advice, we are often a big part of the process of getting you organized and aligning your wishes with your values first. If you need help thinking through these or any other planning issues – let us help!