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What IS a Financial power of attorney, anyway?

You’ve probably heard you need to have a financial power of attorney in place, but the whole thing seems a little ambiguous . . . what does this important legal document (which is a necessary part of a complete estate plan) actually mean? Let’s cover the basics.

SIX “MUST HAVE” DOCUMENTS OF YOUR ESTATE PLAN

As discussed in this previous blog post overview , there are six documents that should be part of most everyone’s estate plan:

In a follow-up blog post, we considered the basics of a will.

And, in my latest blog post, we discussed the power of attorney for health care.

Let’s move on, now, to the financial power of attorney.

WHAT IS A FINANCIAL POWER OF ATTORNEY?

A financial power of attorney (“POA”) is a legal document that designates someone (an “agent,” sometimes also called an “attorney-in-fact”) to handle your financial decisions on your behalf, if you are unable to do so while living, due to illness, injury, and/or lack of mental capacity.

IMMEDIATE VERSUS SPRINGING

There are two main types of financial power of attorney I offer my clients.

Immediate power—effective from the moment you sign it, without any medical certification; while immediate, you do not lose control of your affairs. (This is typically what I recommend.)
Springing power—becomes effective only upon medical certification that you are unable to carry on your legal and financial affairs.

WHAT HAPPENS IF I DON’T HAVE A FINANCIAL POA?

If you don’t have a financial POA, and you were to become incapacitated, any financial decisions would need to be made by a court-appointed conservator. Under a court’s direction, the conservator would handle your financial matters. To have a conservator appointed by a court is a quite expensive and time-consuming process, especially compared with the relative simplicity of executing a financial POA. Also, court proceedings generally being public, having a court consider whether or not you are “competent” to handle your own financial matters, is potentially embarrassing. Futher, you’d much rather leave your important financial decisions to a person you love and trust, over someone a court appoints (a court may not pick who you’d want).

AFTER I DIE, CAN MY AGENT CONTINUE TO OPERATE UNDER MY FINANCIAL POA?

A common misperception is that your agent will be able to use this power after your death. Not true! Upon death, your financial POA terminates and your will and/or trust kick in to guide decision making in your absence.

Put another way, at your death, your agent’s powers are automatically revoked. The representative appointed through the probate process will carry out your estate plan.

WHO SHOULD I CHOOSE TO SERVE AS AN AGENT UNDER MY FINANCIAL POA?

The agent you name will be managing your finances, so it is critically important to choose someone trustworthy; someone who will not abuse or exploit this power; someone who will listen to your wishes, goals, and objectives, as included in the document or otherwise communicated; and someone who will always look out for your best interests.

If there’s no person in your life you believe trustworthy or capable enough to be your executor, or you don’t want to burden with the role, you have another option: appointing a corporate executor or trustee. You can find corporate executors and trustees at banks and private investment firms. They usually charge a fee based on the size of the estate, but corporate executors and trustees have the advantages of experience, a dedicated staff, and impartiality. The latter quality is particularly important if there are complicated family dynamics, such as blended families or bad blood.

You also have the option of designating a successor agent who can take over if the original agent is unable or unwilling to serve. This is highly recommended.

WHO SHOULD RECEIVE A COPY OF MY FINANCIAL POA?

I recommend that the person named as agent and any person named as a successor agent should receive a copy of your financial POA. You may also wish to share a copy with your financial institution(s), such as your bank/credit union, as well as with your financial advisor and/or accountant.

CAN I REVOKE MY FINANCIAL POA?

Yes, you may revoke the financial POA at any time. You can also amend the financial POA (change it, revise it, etc.) at any time.

ARE THERE OTHER ESTATE PLANNING DOCUMENTS I NEED?

Yes, definitely! There are six “must have” estate planning documents. The financial power of attorney is one of these documents that create a basic, overall estate plan.

WHO NEEDS A FINANCIAL POA?

I’m a staunch believer that every adult Iowan needs an estate plan—including young professionals, newlyweds, the non-wealthy, and especially people with minor children—and, therefore a financial POA. A financial POA can even be incredibly important (but often overlooked) for college students.

Do you have a financial POA? How about a full estate plan in place? Why or why not? I’d love to hear from you. Email me at gordon@gordonfischerlawfirm.com or call (515-371-6077).

*OK, not everything. But many things, let’s say, an excellent start.

Recently a friend sent me an article from The New Yorker, “How the Elderly Lose Their Rights.” (While a long read, it’s worthwhile.) The piece focused on the tragic case of a Nevada couple—Rudy and Rennie North—who fell victim to a court appointed guardian who failed (terribly) to put the senior victims’ best interests first and asserted the little known situation where “Guardians can sell the assets and control the lives of senior citizens without their consent—and reap a profit from it.” At first this situation is a bit confusing. How can a couple, with grown adult children, be assigned as wards of a state-appointed conservator/guardian who is then in charge of making health, financial, and social decisions for the individuals?

Given the current and growing population of elderly in the U.S. the issue of court-appointed guardianship it’s an important subject. According to the Census Bureau, “residents age 65 and over grew from 35.0 million in 2000, to 49.2 million in 2016, accounting for 12.4 percent and 15.2 percent of the total population, respectively.” And, between 2000 to 2016, 95.2 percent of all U.S. counties experienced increases in median age.

What is a Guardian / Conservator?

To be able to protect yourself against such a situation, let’s establish what a guardian and/or conservator actually does and what are the causes for a conservator to be appointed. One person may be both the guardian and conservator and can be combined into a single court action. (Note: these definitions are applicable in the State of Iowa. In some states the words have different definitions and a “guardianship” in Iowa may be considered a “conservatorship” under the verbiage of a different state.)

Iowa Legal Aid offers a clear definition of the two terms:

“In a conservatorship:

The court appoints a person (the conservator) to control the property (or estate) of a ward.
A conservatorship deals with the person’s financial decisions.

In a guardianship:

The court appoints a person (the guardian) to control the person of the ward.
A guardianship deals with non-financial decisions such as where the ward lives and what type of medical care the ward gets.”

For simplicity’s sake, for the rest of the article we’ll just say guardian/guardianship, but know that could also include a conservator/conservatorship.

How does a Guardian get Appointed?

A guardian may be appointed if a court finds an individual incapacitated, which can be due to varied conditions like mental disorder, physical or mental disability, chronic abuse of drugs and/or alcohol, or physical illness. Basically if the court is convinced that a person lacks sufficient ability or understanding to communicate or make decisions in their best interest they could appoint a guardian for the continued supervision and care of the individual.

The process is such that a petition is filed in the prospective ward’s state with information regarding the proposed guardian, the guardian and ward’s relationship (if any), and other info on heirs. Any person deemed “competent” can be appointed as a guardian, so that could include an adult child/parent, spouse, or friend. It could also be a professional guardian entirely unrelated to the ward.

The legal standing for guardianship immigrated over to the U.S. colonies from England and is based on an English statute that’s survived for over 800 years. The state holds the power of parens patriae, “a duty to act as a parent for those considered too vulnerable to care for themselves.” Because this power is of the states and not federally regulated, there are disparate record keeping standards, sealed court records, and no databases of collective figures at the local, state, nor federal levels.

Potential Dangers of Guardianship

Guardianship in the U.S. straddles a fine line between protection and exploitation.

One of the major tenants of the concept of guardianship is “trust.” And, it’s true that there are great guardians who certainly work in the best interests of their charges. Most people assume the role of a guardian for good reason (like caring for a parent), but there are also substantiated cases where victims (largely senior citizens) were subjected to physical abuse, financial theft, and neglect. In a 2010 report, “Guardianships: Cases of Financial Exploitation, Neglect, and Abuse of Seniors,” the Government Accountability Office identified over 150 reported victims who had suffered a total of $5.4 million in stolen funds.

Guardianship has large potential for issues and consequences given the large quantities of people involved. Currently there over 1.5 million adults who live under the care of a guardian who is either a family member or unrelated professional. These guardians control an immense amount of assets to the tune of $273 billion. It’s also true that in the majority of states there are no qualifications to attain the status of guardian other than taking a course, having not declared bankruptcy recent, and not be convicted felon.

The American Bar Association published the statement that “an unknown number of adults languish under guardianship” even if they no longer have the need for someone to make decisions for them (or never did).

Another danger is that while guardianship could be terminated through a court hearing if it can be proved the need no longer exists, the ABA study also asserted the guardianship situation is typically permanent, leaving few ways out for the adults under care. Those who do try to fight against a court-appointed guardian often end up paying excessive amounts of money in attorney and court fees—some even going bankrupt in the process.

Additionally, the aging population of America places increased pressure on court resources which, in turn, can make it difficult for court appointmented guardians to have the optimal high level of oversight necessary. Thus, shady guardians can more easily slip through the cracks and continue to abuse the system and their wards’ assets.

How to Protect Against the Potential

It’s pretty safe to say that no one in their right mind would want a court-appointed guardian (particularly a stranger) to have control over your life. Especially in a way that they could legally:

Change your permanent residence to a more restrictive location.
Consent to withdraw life-sustain medical procedures.
Place restrictions on communications, visit, or interactions with another person.
Make decisions contrary to your wishes regarding general life in areas like recreational activities, clothing, and food choices.

As an example of the prospective consequences of these powers is how a guardian placing restrictions on whom their ward can interact with can result in isolating the ward from their family members. According to Elaine Renoire, a director of the National Association to Stop Guardian Abuse, a victims’ rights group, the top complaint she hears about guardians is how they can legally prohibit their wards from seeing or speaking to their loved ones.

The following legal and estate planning tools are proactive measures you can take today to avoid the potential of being subject to court appointed guardianship.

Health Care Power of Attorney

Health care power of attorney is one of the six main documents all Iowans should have as a part of their estate plan. It allows you to choose a designated representative to make medical decisions on your behalf if you are to become incapacitated either temporarily (such as under anesthesia) or permanently. If you cannot express your medical treatment wishes clearly and coherently, your agent could then make such wishes be known on your behalf. The designated agent also retains the right to receive your medical record information that would otherwise be inaccessible as it is protected under HIPAA laws.

Financial Power of Attorney

Similar to the health care power of attorney, financial power of attorney is a legal document that designates someone to handle your financial decisions and take actions like pay bills, settle debts, and sell property on your behalf if you become incapacitated and unable to do this yourself.

Trust

The number of different types of trusts are practically limitless and a trust could be a valuable estate planning protection tool in some situations. A successor trustee could be named and the document could be used as a safeguard for financial protection.

Proactivity is Key

By being proactive, you can be certain that someone you love and trust will be responsible with their guardianship powers and big/small life decisions, not the courts. Have these documents crafted by an experienced estate planner (not a DIY website) and keep them up-to-date as circumstances change. Luckily there are smart people in Iowa working toward policy change, such as the National Health Law and Policy (NHLP) Resource Center at the University of Iowa College of Law and their recent task force report citing 232 policy recommendations. But, the road toward substantial policy change is long and it’s best to have your own legal safeguards in place just in case.

Want to discuss guardianship further or get started on your powers of attorney documents? Contact me at any time.

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Why Every Iowan Should Have Financial Power of Attorney (Everything* You Need to Know About Estate Planning: Day 4)