Essential documents and tools for your financial planning
I recently presented with an estate attorney to a group made up mostly of recent retirees… our advice overlapped because it is some of the most important advice you can take when thinking about your financial future.
The MOST important document you can have is a Power of Attorney. This document grants legal authority to the named agent to act on your behalf… to do anything and everything you allow them to do. This can range from selling cars and real estate to making donations and gifts. You can make this as broad or as limited as you’d like and allow for it to only be in effect once you are incapacitated (called a springing power of attorney) or immediately (a durable power of attorney). Many people think this is risky, to give someone the ability to do anything financially as if they are you… but in truth, the document can save you a lot of headaches… if you are unable to manage your affairs, who will be able to liquidate assets, transfer money, sell an unused car and cancel your car insurance, all to make sure your care is paid for? Your rent or mortgage, your assisted living fee, your long term care insurance premiums, your doctor and hospital bills… who would pay them and who would move money into your accounts so that you have enough cash to cover them? Who would speak to your accountant to make sure your taxes are filed and paid? Yes this can be your spouse (and you should name a backup as well) but no you should not assume that your spouse will have these powers without a POA naming them.
The risk is small, agents under powers of attorney documents must act in your best interest and if you have a good working relationship with your financial advisor, etc, they will check in with you before doing anything under the instruction of your POA. The link above, to the consumer financial protection bureau, lists some good tips to further safeguard yourself. When you hire a daily money manager, you are further protected as your DMM works alongside your POA to make sure every action is taken in your best interests.
Along with that, introduce your POA to your financial advisor, banker, accountant, etc. ahead of time, they will probably ask for a copy of the document as well. Make sure each is aware of the other’s existence. You want to make that transition and assistance seamless when the time comes! For both your benefit and your POA’s, if something happens, and your accountant knows your agent, they can begin to work together to gather documents for your taxes, knowing what they need, without a lengthy learning curve and introduction.
You should have an attorney draft this for you. Please do not download a form from the internet!
You also need a living will, make it easier on your loved ones by naming a health care proxy, someone who can discuss your medical records with your doctor, and express your wishes for your care in a document, leaving nothing to be guessed at by your family! Also a POLST form: https://www.njha.com/polst/ (link to the NJ one, most states have their own). A health care proxy is basically a Power of Attorney but for medical decisions. A POLST form follows your medical records, usually a living will is requested by the hospital but may not be on file or easily found in an emergency.
Keep your passwords, logins, PINs, etc, in a safe and secure but accessible place, I have made phone calls with clients to their bank and they can’t remember their phone login PIN… the bank won’t even speak with them! - it shouldn’t be crumpled on a piece of paper in your pocket but it should be somewhere safe where it can be referred to if needed. Password managers are wonderful, safe tools, and several are free. You only have to remember one secure password rather than dozens!
And lastly, put beneficiaries and trusted contacts on your accounts if allowed! This is a discussion to have with your estate attorney and accountant but if you want an IRA to go to your alma mater or your nephew fill out the form from your bank! This asset passes outside of the Will and can have tax implications so it is important to add this to your planning discussion. Trusted contacts, if the financial institution or law firm will accept one, is someone that they can reach out to in the event they cannot contact you. Where this comes in handy is to name someone to be notified if you’ve missed a payment. I was hired by the friend of a client who, unbeknownst to everyone, had a long term care insurance policy that lapsed, by the time I was brought in he had missed several payments and the policy had been cancelled.
