Estate planning is often thought of as a way to pass your assets to the next generation at your death. However, another aspect of estate planning is designating someone to manage your financial affairs while you are still alive.
Perhaps you wish to anticipate a future infirmity and designate someone to act on your behalf for when you are alive but too infirm to act for yourself. Or you may anticipate being unreachable for a period of time and wish to appoint someone to manage your affairs while you are away.
Among the tools in an estate planner’s toolbox that apply to situations while you are still alive are financial powers of attorney and health care directives.
Health care directives allow you specify the kind of medical care you wish or do not wish to receive and to designate someone to make medical decisions if the time comes when you are unable to make them yourself.
This article explores financial powers of attorney and how they can help you manage your financial affairs by appointing someone you trust, called an “agent”, to manage your assets, pay your bills, file your tax return, apply for benefits, and the like.
A financial power of attorney can be tailored to provide exactly the authority you wish your agent to have or not to have– for example, to sign your tax return but not to pay your bills or vice versa.
If you are concerned about a future infirmity from which there may be no recovery – for example, dementia – you may wish to name an agent who will have broad powers to act on your behalf when you are no longer able to handle your own affairs.
Your named agent will be required by law always to act on your behalf. If any question is ever raised about how your money is being spent, your agent can be called upon to account for all actions taken as your agent, including the expenditure of your funds.
In the “old days”, powers of attorney ceased to be effective once the person creating it became incompetent. In those days, just when you might have wanted your power of attorney to be effective, your incompetency caused it to cease to work! The only alternative was for someone to go to court to have a guardian appointed for you.
Laws have changed in most states, including New Hampshire, Maine and Massachusetts. Now you can sign a “durable” power of attorney which will avoid a guardianship and permit your agent to act on your behalf when you no longer are able. “Durable” powers of attorney are what most people create these days.
You may ask whether it might not be easier to skip the durable power of attorney and instead convert your financial accounts into joint accounts by having your bank or financial institution list your loved one or other person you trust as a “signer” on those accounts. The answer to this question is that, while it may be a bit simpler, you may not get the result you hoped for!
Here are reasons why you may not want to add someone as a “signer” on your accounts:
- The person you add as a joint tenant or “signer” will immediately be entitled to withdraw your funds anytime with no questions asked and for any purpose, including for his or her own use.
- Converting your bank account to a joint account exposes the assets in the account to the joint tenant’s creditors from the moment you create the account, i.e., while you are still alive.
- If the signer is married and becomes involved in a divorce, your assets may be considered to be the signer’s assets for purposes of resolving issues in the divorce.
- If the signer survives you, the balance in the account becomes the signer’s at your death. This means that, if you created the joint account only as a simple way for someone to manage your affairs during your lifetime, the balance in the account leaves your estate at the moment of your death.
- You may intend that at your death your estate will be split among children or others, but the money in the joint account will be out of the reach of your intended beneficiaries and will be 100% in your joint tenant’s pocket.
The bottom line is that a financial durable power of attorney carefully crafted to meet your specific needs can be useful for management of your estate during your lifetime without compromising your plan for the disposition of your assets at your death.