Most of us spend a lot of time and effort in managing our finances. While majority of us are worried about how the coronavirus (COVID-19) will impact our income—whether that’s because of being placed on a temporary furlough, working for an affected industry, not being able to work full time due to childcare issues, or watching the investment and retirement accounts dwindle—there is another way COVID-19 can wreak havoc on our finances: lack of incapacity planning.
During the quarantine, thousands of Americans found themselves unable to carry out normal financial responsibilities because they were too ill, stuck abroad and unable to travel home, or not being able to leave home.
Under these circumstances it becomes crucial to have someone able to take care of your financial responsibilities. However, it is too late to plan after you get sick or find yourself in a tough situation. All of the planning should be done while you are healthy and able.
To appoint someone to carry out your financial duties, you will need to set up a Financial Power of Attorney, sometimes also called a Durable Power of Attorney, a POA, or a Financial Directive. This important legal document will not only protect your finances should you fall ill from COVID-19 but also from any events that might leave you incapacitated, like an injury or accident.
Power of Attorney: what is it?
A Power of Attorney (POA) allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become incapacitated and unable to make your own decisions due to illness or injury or if you are unable to handle your financial affairs for some other reason (like being stuck on a tropical island with a cocktail in hand). 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. This can result in accounts going into default, fines, penalties, and overdraft fees, not mention a ruined credit score.
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 and valid POA 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.
Why would a court do that?—You may ask. As an adult, no one is automatically able to act for you, you must legally appoint them through the use of an POA. Without it, you and your loved ones could lose valuable time, money, and control especially considering that during this recent pandemic even the courts were on a complete lockdown.
WORD OF CAUTION: 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.
- Property seizure. You read that correctly. If your joint owner is sued, 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.
As you can see, relying on joint ownership may be risky and not work as intended. Only a comprehensive incapacity plan will protect you and your assets from a court-supervised conservatorship and the misdeeds of your joint owner.
Already got a POA? Chances are it’s outdated.
A POA can become “obsolete” in a pretty short period of time. This is because many financial institutions don’t want to rely on stale, outdated documents. A POA will be considered aged out after five years or so and will definitely not be accepted if executed ten years ago. Moreover, some financial institutions require that the POA on file would be updated every calendar year.
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. We 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 a financial power of attorney right for your situation and goals. Determine your specific needs while you are of sound mind. Of course, nothing tops the advice and recommendations of an attorney experienced in these matters. So if you are wavering between your options, give us a call at 619-630-4765.