Taking action to protect your assets and what's yours while you're still alive and in sane mind makes such good sense. There are many ways in which you might be unavailable to make critical financial or health care choices for yourself or your loved ones. It could happen as a result of disability, dementia, or simply enjoying an exotic vacation. If you’ve not documented your desires in advance, it can add extra stress for everyone. In addition, the outcomes may not be what anyone had in mind!
One source of confusion over when and how you can protect your assets is to understand which legal logistics apply during your lifetime. Then there are others which only come into play until after you pass.
In this post, we’ll cover a trio of tools to protect your assets while you are alive:
A financial power of attorney (POA) is a legal document which authorizes someone (your “agent”) to make financial decisions on your behalf. No matter how much authority you grant an agent, they still owe you a fiduciary level of care. This means any decisions they make for you must be based on what they believe to be in your best financial interests to protect your assets.
A POA applies while you are alive, but unavailable to act for yourself. You can structure it to:
A financial POA can be helpful to address:
In 2017, the SEC approved the role of trusted contact person as part of a FINRA Rule 4512 amendment. The amendment requires your account custodians (brokers) to encourage you to name a trusted contact. This person is an extra line of defense for your investment accounts. If the custodian feels you are being financially exploited, they have a back-up person they can talk to about some of their concerns. The additional input may enable them to delay disbursing funds from your account “where there is a reasonable belief of financial exploitation.” [Source]
The primary aim of the FINRA amendment is to prevent financial elder abuse. There are at least two scenarios when a trusted contact can be useful:
Imagine you’re on a mid-Atlantic cruise, and your broker receives a suspicious trade order from “you.” They try, but cannot reach you to verify it’s really you. If there is no trusted contact to reach out to, they may have little choice but to execute the trade and disburse the funds as ordered. If a trusted contact can instead provide evidence that the order is likely fraudulent, your broker may be able to place a temporary hold before disbursing the funds.
Similarly, if a loved one is exhibiting signs of dementia, a trusted contact can help prevent them from falling prey to financial exploitation. What if your aging parent tries to empty out their own bank account to help a “friend” in need? If your parents have named you as a trusted contact, an account custodian who suspects foul play can reach out to you, explain the circumstances, and receive your “second opinion.”
If you’ve named someone as a trusted contact, your broker or account custodian can discuss some of your relevant circumstances with them, and gather pertinent information from them. But a trusted contact cannot make any financial decisions on your behalf, nor can they view your account. Unless you grant it to them separately, a trusted contact does not have a financial power of attorney, as described in Section I.
Your healthcare advance directive can offer two types of protection:
Your healthcare advance directive only comes into play if you are alive, but unable to direct your own medical care.
Accidents and illnesses can rob you of your mental capacity – temporarily or permanently. If you do not have an advance directive in place, healthcare professionals and/or key family members may have to make medical decisions for you. They do not know what you would have preferred. Also, the individual(s) you would most want to have making decisions on your behalf may not be able to do so unless you named them as your representative(s) in your advance directive. This can be stressful if not heartbreaking for everyone involved.
We hope these 3 steps have helped clarify the role these critical protections can play to protect your assets during what we hope will be a long and prosperous lifetime. That said, professional legal counsel is usually warranted as you sort through the details. Let us know if we can put you in touch with select professionals to assist – or if we ourselves can help you sort through the logistics involved. That’s what we’re here for!
Douglas Finley, MS, CFP, AEP, CDFA founded Finley Wealth Advisors in February of 2006, as a Fiduciary Fee-Only Registered Investment Advisor, with the goal of creating a firm that eliminated the conflicts of interest inherent in the financial planner – advisor/client relationship. The firm specializes in wealth management for the middle-class millionaire.
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