A financial power of attorney is an important part of your estate plan, but to make sure it will perform as intended, check on these important factors.
Every estate plan should include a financial power of attorney (POA), a legal document that names an agent to make financial decisions and handle your financial affairs, if the person should become unable to do so because of a physical or mental impairment. However, having a general document does not always give you the protection you want.
MD Mag explains, in “Five Questions to Ask About Your Financial POA,” that many doctors believe their financial POAs assure that their financial affairs would be handled precisely according to their wishes. However, these documents may not achieve this goal, because they may contain boilerplate and generic language. Those with substantial assets, like many physicians, should have POAs with more specificity.
One area of vulnerability that’s created by a lack of specificity is with agents. These are the individuals you choose to carry out the POA’s provisions. General terms may result in that person going astray of your actual intent, even when they think they’re doing what they thought you’d want.
To avoid problems that can’t be corrected, consider ask a qualified estate planning attorney about your financial POA, including the following:
- As the POA is presently written, is the agent you appointed permitted to legally give your money to anyone (including themselves)? If it does, this emphasizes the need for a trusted agent. It’s not uncommon for a spouse/agent to give money to their grown children from a previous marriage or even to themselves.
- Your Dependents. How does the POA work for those you’re currently taking care of financially, like an elderly parent? Review the POA with your attorney to be certain that the agent must send money to support your mom or dad for you.
- Beneficiary Designations. See if it’s possible that your agent could legally change your beneficiary designations in your 401(k) plans, IRAs, annuities, and life insurance policies. Ask your attorney to place some limits on the agents’ discretion to avoid this.
- POA Works with Your Overall Financial Strategy. See that your POA allows your assets to be managed as you really want and be sure the management is consistent with your long-term financial plan. If you have an investment policy statement—a document that states your investing goals, how to reach them (broadly), the degree of risk that your investments should have and your personal risk tolerance—it should be referenced in and/or appended to your POA.
- Being Up to Date Just as your estate plan needs to be reviewed every time a major life event occurs—getting married, divorced, having a baby, becoming seriously ill or a family member passing away—you should also make sure that your POA is still current.
Reference: MD Mag (December 27, 2017) “Five Questions to Ask About Your Financial POA”