Financial Management Tools
The Financial Power of Attorney is an invaluable tool for incapacitated persons and their caregivers. Using a Financial Power of Attorney, a person (the “principal”) delegates decision making authority to a trusted family member or other agent. A Financial Power of Attorney allows your financial affairs to be managed effectively and in accordance with your wishes if you are ever unable to handle them yourself.
A Financial Power of Attorney is a powerful tool that should only be given to an agent who can be trusted completely. There are many issues you need to consider before you sign a Financial Power of Attorney. Questions to ask yourself include: (1) Should the document give your agent the power to act whenever the agent decides it is necessary, or only when only when someone other than your agent (e.g. your doctor) determines that you are incapacitated? (2) How broad are the powers you want to give to your agent? For example, do you want your agent to have the power to give away your assets? (3) Do you want to name more than one person to serve together as co-agents for you. (4) Who should you name as a back up to take over if your original agent cannot serve?
Joint ownership is a widely used form of property management. Husbands and Wives often share ownership of bank and investment accounts and real estate in this manner. Normally these assets are held “with right of survivorship,” which means that upon the death of one of the owners, the asset becomes owned solely by the survivor. Joint ownership as a property management tool has many limitations and may not allow your joint owner to effectively manage your finances. There can also be tax complications with joint ownership arrangements and they can upset your estate plan. Most experts suggest that you should not rely on joint ownership as your only management tool.
A living trust is a trust you create to take effect during your lifetime. If it can be changed or canceled by you at any time, it is called a revocable trust. If you cannot change or cancel the trust, it is called an irrevocable trust. Revocable living trusts are asset management and probate avoidance devices. They have no tax or asset protection advantages. Irrevocable trusts are usually created to obtain tax savings or to protect assets from creditors.
Representative Payee Status & Guardianship
Representative Payee Status functions something like a mini-guardianship, limited to the sole purpose of managing a person’s Social Security income check. It is also available for Civil Service, Railroad Retirement, and Veterans Administration checks. A representative payee can be established for an incapacitated beneficiary without going to court. Someone must apply to the Social Security Administration or other agency to be named as representative payee. Annual financial accountings are required.
Guardianship is the legal tool of last resort for decision-making and management of the financial and personal affairs of an incapacitated person. Guardianship involves a court proceeding whereby an individual is adjudged to be incapacitated and someone is appointed by a Judge to act as guardian for that individual. The guardian may be authorized, acting under court supervision, to act for the incapacitated person in making property management or personal and health care decisions, or both. Guardianships are inflexible and relatively expensive.
The health care power of attorney and the living will are two important legal tools that can help you ensure that you retain some measure of control over the medical treatment you will receive in the event that you ever lack the competency to make treatment decisions for yourself. For more information, check out our article, Living Will vs. Health Care Power of Attorney