Avoid powers of attorney mistakes

When wealthy individuals work with professionals on estate planning, powers of attorney (POA) are often viewed as an after-thought, to be addressed only after the will and trust documents completed.

When attention is finally turned to POAs, the issue of whom to appoint as agent—the person who receives power of attorney—usually gets short shrift. These agents take over your affairs in specific areas if you become physically or mentally incapacitated. Whom to appoint should be an area of focus for physicians with significant accumulated wealth as they plan their estates.

Choosing the wrong person to act as agent for a financial POA can set the stage for unintended consequences that might result in disastrous outcomes. Appointing the wrong people as agents for both your financial and healthcare POA can be hazardous to your health and your wealth. 

If both of these POAs are held by the same person, there’s potential for a cornucopia of conflicts. And if that same individual person is also a beneficiary in your will, the conflict-potential level could rise to DEFCON 1.

Conflicts can result in agents serving themselves instead of you, so agents should be selected with great care and not entrusted with more than one POA. Ideally, this person shouldn’t be a beneficiary, though avoiding this dual status can be difficult when the natural inclination is to make one’s spouse the agent of both POAs, which is quite common.

But whether this is a good idea may come down to knowing how good and truly loving your marriage is or, if you’re not married, how solid your relationship. It’s a good idea to ask yourself: How well do you know this person and how long have you known him or her?

At the very least, if you appoint the wrong person as agent for your financial POA, incompetence can hamstring investment gains and erode assets. In a worst-case scenario, a self-dealing agent can change beneficiaries (making himself or herself one) or redirect portfolio income to themselves. But these actions are legal only if POA documents allow it. This is one of many reasons that these documents should be carefully considered and drafted.

An incompetent healthcare POA agent can inadvertently arrange sub-optimal healthcare or send you to an inappropriate care facility. A bad-intentioned, self-dealing agent may do so deliberately to gain advantage, especially if this person also has financial POA. The longer you’re confined and shut off from communications (as can easily happen in this pandemic era), the longer this agent would have control over your finances without interference from you or your loved ones. If this agent-run-amok is also a beneficiary, this could even create an incentive to use a healthcare POA to potentially hasten your demise.

The last scenario isn’t just a movie plot. It actually happens. Though quite unusual, there are cases where wealthy individuals have been sent to hospice by healthcare POA agents (usually, partners or spouses they haven’t known very long), though they weren’t terminal ill. And like everyone else in hospice, they died there, leaving their wealth to the POA agent, who was also a beneficiary.

More commonly, POA responsibilities are executed without malevolent intent, but incompetently. Even when agents are well-intentioned, poor decisions can be made, so it’s critical to have highly competent people make financial and medical choices on your behalf.

Designating the right person(s) as agents is only part of assuring desirable financial and medical stewardship. The other important part is crafting POA documents correctly to delegate the right powers, conditioned on specific circumstances, in accordance with your wishes.

All too often, people use boilerplate POAs with overly broad provisions, which they signed after a cursory review or none at all; some don't even read these documents.

Failing to read POA documents carefully—or to make changes to limit agents’ power—could be an especially detrimental lapse when the presumed agent brings the documents to you on their own initiative. If the documents come to you out of the blue, with no prior discussion, this should get your antenna up. When people sign POAs without carefully reading and considering their provisions—or without involving a qualified attorney--they’re oblivious to the poor position they may be putting themselves in.

POA documents should make provisions suitable for your situation to prevent outcomes askew of your intentions. When discussing agent candidates with your attorney or estate planner, you might want to consider:

• Designating different grown children as agents for financial and healthcare POA. If you have doubts about the ability of spouse or significant to serve as your POA agent, this could be a better option—especially if you haven’t known your current partner long. Grown children would probably have physical capacity to serve much longer than your partner (unless that person is a lot younger). Regardless, if you have more than one child who could serve, this might be a way spread POA duties around.
• Designating co-agents. A single POA doesn’t have to be held by a single individual. You could have two agents working together to execute one POA. The usual trust threshold applies, but the two also must be able to work together. If you have a grown child who needs guidance for the role, another relative (such as their aunt or uncle) or a long-time friend might be able provide it while acting as co-agent. Appointing co-agents can be way to avoid overburdening one individual and to create checks and balances.
• Keeping agents separate. The sure-fire way to avoid conflicts that can ensue from one person’s having both financial and healthcare POA is simply to not give both to the same individual. These duties should be assigned to two different people.

By choosing POA agents carefully and deliberately, you avoid a lot headaches when you least need them.

David Robinson, a Certified Financial Planner, is an advisor with Mariner Wealth Advisors in Phoenix. His practice focuses on helping wealthy individuals with custom financial plans and using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.