Don’t Risk It: Protect Your Finances From Unforeseen Complications
Many Americans spend a lot of time and effort in managing their finances. While most are worried about how economic uncertainty will impact their income—whether that’s because they are temporarily furloughed, find themselves suddenly without a job, or watching their investment and retirement accounts dwindle—there is another way unforeseen economic hardships can wreak havoc on a person’s finances: lack of incapacity planning.
Thousands of Americans are unable to carry out normal financial responsibilities because they are too ill, or they are stuck abroad and unable to travel home, or suffer from a lack of resources.
While feeling healthy, individuals should proactively ensure that someone will take care of their financial duties by setting up a Financial Power of Attorney. This important legal document will not only protect your finances should you fall ill, but also from other events that might leave you incapacitated, like an injury or accident.
Financial Power of Attorney: what is it?
A Financial Power of Attorney (FPA) allows you to select a trusted family member, friend, or professional who will be responsible for managing your financial assets if you become mentally incapacitated (unable to make your own decisions) due to illness or injury. Without this document, bills won’t get paid, tax returns won’t be filed, bank and investment accounts held in your name will become inaccessible, retirement distributions can’t be requested, and property can’t be bought, sold, or managed.
What happens if I don’t have one and get sick?
If you get sick and are unable to make or communicate your financial decisions and don’t have an updated FPA in place, a judge can appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship or conservatorship. Court supervision and appointment generally costs both time and money.
Why would a court do that? As an adult, no one is automatically able to act for you, you must legally appoint them through the use of an FPA. Without it, you and your loved ones could lose valuable time, money, and control.
Don’t think you’re protected just because your assets are held jointly with your spouse, child, or family member. Here are three reasons why you shouldn’t rely on joint ownership:
Limited power. While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners.
Tax liability. By adding a family member’s name to your accounts or real estate titles you might be saddling them with gift tax liability.
Liability of co-owner. Adding a co-owner to your accounts opens your assets to the personal liability of that co-owner.
Property seizure. You read that correctly. If your joint owner is sued than your property could be seized in order to pay their debt.
Medicaid disqualification. Putting a loved one’s name on a joint bank account or property title can disqualify them from receiving government benefits, such as Medicaid.
Only a comprehensive incapacity plan will protect you and your assets from a court-supervised guardianship or conservatorship and the potential misdeeds of your joint owners. Do not rely on joint ownership as your plan—it’s simply too risky and unreliable.
Already have a Financial Power of Attorney? It could be outdated.
An FPA can become “obsolete” in as short as one year. This is because many institutions don’t want to rely on stale, outdated documents. Depending on your circumstances, a stale, obsolete power of attorney may not be able to help you and your family with insurance contracts, retirement plans, banking and investment accounts, online personal accounts such as email, Facebook, Instagram and LinkedIn, and elder care and special needs planning.
If it’s been more than a year or two since you’ve signed your power of attorney, it might be time for a fresh one. Bily Harlow, PLLC can help make sure you and your family are fully protected by helping you determine:
● Who would be the best choice for this responsibility,
● How much authority you should give your financial agent, and
● When to make your power of attorney become effective.
Regardless of your priorities, there is an estate planning solution for your specific situation and goals. Determine your needs while you are of sound mind. There is no substitute for the advice and recommendations of an experienced attorney that is familiar with your situation.
This blog post is a general commentary regarding Financial Powers of Attorney. Each person’s situation is different. If you wish to discuss your specific estate planning goals, give Bily Harlow, PLLC a call today.