With business owners always on the go and oftentimes leaving their personal matters last, important planning items can go by the wayside.While they are overworked making sure their business is running on all cylinders, the need for personal planning is needed even more as health risks climb in correlation with stress levels. In conversations with clients and fellow advisors, it is astonishing how many individuals in high stress situations do not have proper estate planning in place, especially an updated Power of Attorney or Personal Representative. Matthew Okaty of Centerpoint Advisors recently wrote a piece on just this matter called The Importance of a Power of Attorney:

"A Power of Attorney (POA) is an important planning item that will generally be included in any comprehensive estate plan.  While a Last Will and Testament directs how your assets will be distributed after you die and assigns an executor or personal representative to carry out your wishes, a POA gives an agent of your choosing the authority to oversee your financial affairs while you are alive, typically if you become incapacitated.  For some people, the idea of giving control to another individual, even a close family member, is scary and may even cause them to postpone creating a POA.  Whether this is due to a lack of trust or a strong sense of independence, not having a POA can have unfortunate and even severe consequences, especially as we get older.

One of the most common causes of incapacitation is a stroke, which strikes suddenly and can happen to almost anyone.   In fact, according to the CDC (Centers for Disease Control and Prevention), someone in the United States has a stroke every 40 seconds.  The more severe strokes can lead to paralysis and the inability to communicate and thus interfere with a person’s ability to handle his or her own financial affairs.  Without a POA, any bank accounts or other assets titled individually (such as IRA’s and 401k’s) can become inaccessible.  We have seen several cases of this happening, necessitating lengthy and costly conservatorship proceedings in court.  Additionally, even real property (i.e. your house) held jointly by both spouses via Tenancy by the Entirety can become encumbered, as both spouses are required to sign the deed if you decide to sell the property, should you need to downsize to raise money for long-term care.

For those who may be hesitant, be aware that you can revoke a POA at any time (as long as you are mentally competent), and you can also create what’s called a “springing” POA which doesn’t take affect until you are deemed incapacitated (as certified by a physician).  Generally, it is also recommended that you create a Durable POA which means that the POA remains effective even after you become incapacitated.  Otherwise, a POA that isn’t Durable will automatically end once you become incapacitated, which defeats the purpose if your goal is to have a continuity plan in place for medical emergencies.  A non-durable POA is usually reserved for more limited or specific powers, such as authorizing someone to sign a legal document on your behalf if you cannot be present physically.

Although POA’s often contain standard language and may be found online, it is best to consult an estate attorney because POA’s are not all created equal and the laws vary in different states.  Some financial institutions or other third parties may not accept the POA if the specific power that your agent is trying to exercise is not explicitly authorized in the document.  It is also common for financial institutions to challenge because of liability concerns.  While legally they may be required to accept a validly executed POA, it may take some wrangling to get them to do so.  To better ensure that your POA is accepted, it should be notarized and signed in the presence of two witnesses.  It is also advisable to inquire in advance about the policies of the financial institutions where you hold assets, as they may have their own POA forms that they prefer people use.

Lastly, if you have been named someone’s agent under a Power of Attorney, it is important to understand your fiduciary responsibilities and what the role entails.  Here is a helpful guide from the Consumer Financial Protection Bureau if you should need any guidance: “Managing Someone Else’s Money – Help for Agents Under a Power of Attorney.”