As more Americans are living well into their 80s and even into their 90s, the spectrum of risks that an aging population faces is only getting wider. The need to address longevity risk has become increasingly important, allowing financial advisors to add even more value for their clients by ensuring that their financial needs are met throughout retirement. This is particularly relevant when cognitive or physical impairments diminish (or eliminate altogether) their ability to make decisions on their own, and it becomes necessary to transfer those responsibilities to someone else. And while transferring responsibility may be relatively easy for accounts that are jointly titled or held within a trust, other accounts, such as qualified savings vehicles or annuities, require a Power Of Attorney (POA) when delegating decision-making authority to a third party.
In this guest post, David Haughton, the Team Lead for Advanced Planning at Commonwealth Financial Network, explores the importance of comprehensive POAs and how they can be constructed to avoid many of the common pitfalls that loved ones may encounter when accessing an incapacitated person’s assets.
When it comes to giving someone the authority to act on behalf of a grantor, an essential consideration when developing a POA is durability. Unfortunately, nearly half of all U.S. states do not consider POAs to be durable (i.e., these states do not consider the POA in effect after the grantor’s incapacitation) unless they expressly state otherwise. Moreover, even if durability is established, it’s important to distinguish between an immediate POA, which is effective as soon as the document is signed, and a springing POA, which won’t be effective until the grantor becomes incapacitated, and that incapacitation has been certified by a doctor as well!
Still, even with a durable and immediate POA, financial institutions are often reluctant to grant access to a grantor’s accounts, which is understandable given the amount of fraud and elder abuse present in society. There are several reasons for financial institutions to prevent an agent from being added to an account, including the age of the POA itself and whether the document was prepared so long ago that it is considered ‘stale’, any number of (nuanced) state-specific signature formalities (e.g., notarization or witness requirements), the inclusion of multiple agents (which are often prohibited by financial institutions simply for the logistical complexity of getting more than one signature), complications with forms that are specific to an individual financial institution (but not others), and a failure to specify that the agent is authorized to take actions that are otherwise prohibited under the Uniform Power Of Attorney Act (UPOAA).
As a result, taking a ‘kitchen sink’ approach to drafting POAs is advisable, even if the resulting document may seem overly complex and lengthy. By including every possible specific power an agent could conceivably need when acting on behalf of someone else, the chances that an institution might block an agent from taking various actions (like making a gift or changing beneficiaries) are greatly reduced.
Ultimately, the key point is that a properly drafted POA is an essential part of every estate plan. By using a ‘kitchen sink’ approach when granting a loved one the authority to access a client’s assets, an advisor can help ensure that their financial needs can be met at a time when they aren’t able to act on their own behalf. While it’s important for financial institutions to protect their customers from fraud and abuse, the roadblocks that can prevent an agent from taking action can be numerous and complex, meaning that advisors who understand the nuances around navigating those hurdles can help their clients gain peace of mind knowing that their needs are met at a time when they need help the most!
