While technology has enabled us to simplify and automate many routine financial tasks (i.e. bill paying, account transfers, etc.), it is only a matter of time until a more significant situation arises requiring deeper thought, sound judgement, and perhaps more importantly, your legal approval.
Have you considered what would happen if you became mentally and/or physically incapacitated and were unable to effectively make decisions or conduct business (either temporarily or more permanently) on your own behalf? Who would step in to handle your personal and business affairs for you?
Whether or not you are single, married or divorced, sound financial planning involves contemplating such a scenario, and giving someone else the power to make important, and potentially difficult, financial and legally binding decisions for you.
Appointing the Right Agent
This concept of giving someone, referred to as your agent, the power to manage your affairs on your behalf is known as giving “power of attorney (POA).” The POA is given by executing a legal document that names your agent, and specifies the types of transactions, situations, and conditions that your agent can legally act on your behalf. Most people will get POA documents drawn up by an experienced estate planning attorney at the same time they are getting their will and other estate documents.
A spouse, parent, sibling, close friend, or advisor is the most common option when choosing an agent. However, giving someone the legal right to act on your behalf is not something that should be taken lightly. Even if someone is related to you, he or she might not be the best choice.
Here are some considerations when naming your POA agent:
- Trust – How well do you know the person? Can you be sure he or she will put your best interests first and not their own?
- Ability – Even if you trust your agent, is he or she readily available, accessible, and responsible?
- Knowledge – Does he or she have good judgement and enough knowledge about your personal and business matters to make sound decisions?
- Successor – Have both a primary agent and a back-up(s) in the event the primary is unable to do the job. Also, if you have multiple agents, do they need to act together or can they act independently?
Don’t Stop There
Once you’ve gone through the trouble of selecting an agent and having POA documents drafted, there are additional steps you should take.
- Notify and give your agent a copy of the POA document or let him or her know where to find the original.
- Notify relevant professionals (i.e. bankers, financial advisors, attorneys, CPA, etc.) that a POA exists and provide the agent’s contact information as well as a copy of the POA.
- Periodically review your POA along with your other estate documents to make sure things haven’t changed (i.e. divorce, death of an agent, change of status, etc.)
- Check with your primary financial institutions (i.e. bank, brokerage firm, etc.) to make sure they do not have any other required forms to make sure your POA meets their standards.
At SMS Capital Management, we have seen many situations where the POA has been utilized due to both foreseen as well as unforeseen circumstances. Thus, we encourage our clients to evaluate their particular situation, and determine if a POA is appropriate.