While planning their estates, many physicians engage an attorney or estate planner to deliver a neatly bundled package of documents that usually includes a will, attendant trusts and various powers of attorney (POA).
Among these POAs is a financial one to establish how your financial affairs would be handled if you were to become physically or mentally incapacitated to the point where you couldn’t competently make these decisions yourself.
Many physicians assume their financial POAs assure that their financial affairs would be handled precisely according to their wishes. But all too often, these documents fail to achieve this goal because they’re often replete with boilerplate — broad statements designed to cover the needs of just about everyone and no one in particular. Most people, especially physicians with substantial assets, need more specificity. So off-the-shelf POAs need to be customized or ripped up so you can start over.
A common area of vulnerability created by the lack of specificity involves agents — the person or persons you designate to carry out the document’s provisions — who might go astray of your actual intent, even if this person is someone you love. Of course, as in all legal matters, what you actually intend isn’t clear if it isn’t included in the POA.
Unfortunately, these shortcomings typically aren’t noticed until it’s too late — until the person covered by the POA is incapacitated and unable to competently execute a revision. This can create a real mess for everyone involved.
To avoid this scenario, consider asking your attorney or estate planner these questions about your financial POA:
- What does it say about gifting? As the document is presently written, can agents appointed to handle your finances legally give your money to anyone they want, including themselves? If so, this naturally puts more importance your choice of an agent. If the agent is your spouse, you might be operating under the assumption that all will go as you intend. However, couples sometimes have the problem of a spouse/agent gifting money to their grown children from a previous marriage or even themselves.
- What does it mean for those for whom you’re currently providing? If you’re supporting your elderly parent— or another relative or close friend — does the document assure that the agent will send those checks in your stead? If you’re supporting a disabled adult child, will he/she receive the income and support, including medical care or physical therapy, that you’ve long provided and assured them would continue? Sure, that person is probably listed as a beneficiary in your will, but if, and when the POA kicks in, you won’t be deceased.
- Could your agent legally change your beneficiary designations in 401(k) plans, IRAs, annuities and life insurance policies? Of course, your will designates beneficiaries of your assets, but assets held in such accounts go the beneficiaries you’ve designated with the institutions that hold them. If your POA doesn’t put enough limits on the agents’ discretion, he or she might be able to legally change the beneficiaries from your children or relatives to theirs — or to themselves.
- Does it assure that your assets will be managed as you truly intend? This management should be consistent with your long-term financial plan. You may have an investment policy statement — a document that sets down your investing goals, the path to reach them (broadly) and the degree of risk that your investments should reflect, consistent with your personal risk tolerance. If so, this document should be referenced in and/or appended to your POA. If this language is too broad, the assets that you’ve nurtured with the care of a trusted advisor could be turned over to sales-obsessed brokers looking for their next commissions. Or, in a speculative quest for greater returns, financial advisors chosen by your agent could significantly increase the risk levels of your portfolio. POAs should include enough detail on how your assets should be managed so that your financial plan doesn’t go off the rails, decreasing your estate.
- Is it up to date? Life continually brings changes: People get married, divorce, have children, fall chronically ill, become disabled, change their careers and lifestyles — and, of course, they die. Just as you should update your wills and trusts to reflect new circumstances, you should make sure your financial POA is current, too.
By asking these questions, you can start the ball rolling to make sure this document achieves what you intend and affords appropriate protections.
David Robinson, CFP®, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.