Ask Matt: Are Your Clients Financially Protected in the Case of Incapacitation?

 In Retirement Planning & Wealth Management

Retirement and wealth strategies expert Matt Sommer answers questions from advisors on market events, legislation and trends that may impact their clients’ investments.

My client, noticing a number of recurring charges on his elderly father’s credit card statement, came to me with concerns about unnecessary services and wasted funds. Is this common? What should he do about it?

As many Americans get older, they may find that previously used services are no longer necessary. Common examples include gym memberships, music and movie subscriptions and private health insurance coverage that now may be covered by Medicare. The convenience and ubiquity of automatic billing services may end up costing retirees hundreds, if not thousands, of dollars. Some individuals don’t even realize charges are occurring, while others lack the facilities to cancel unnecessary services and memberships. The good news is there’s a solution for concerned family members and trusted professionals.

A durable power of attorney for finances appoints an agent to make financial decisions on behalf of an incapacitated individual (the principal). This useful document can be drafted by an estate planning attorney, usually for a reasonable fee. Incapacity is often associated with physical disability, but a durable power of attorney also becomes effective upon the principal’s cognitive impairment. The appointed agent is then empowered to handle a number of financial responsibilities including:

  • Banking
  • Investments
  • Paying bills
  • Real estate
  • Other illiquid assets

In addition to these financial essentials, a retiree’s bank account may get dinged by a number of auto-pay services. These services often invoice a monthly or annual fee to an individual’s credit or debit card, and the payments can go unnoticed by family members and spouses for months or even years. Once the oversight is identified, having a durable power of attorney in place empowers the agent to oversee corrections and cancellations.

Many Americans have availed themselves of the simple and inexpensive process of drafting a durable power of attorney for finances. The bad news is that important considerations often end up overlooked or miscalculated. These potential shortcomings are not typically realized until it’s too late. Financial advisors have an opportunity to raise three critical points to help ensure clients and their families are well prepared.

  1. Is the agent aware of his or her role, and what the responsibilities are?
  2. Individuals are sometimes named without their knowledge or consent. As a result, they are caught off guard by the enormous responsibilities that go with being named agent. It’s crucial for agents to be educated about their role. Provide copies of the durable power of attorney in advance of signing so agents know where to start when the time comes.

  3. What criteria were used to select the agent?
  4. For single retirees, the choice of agent is often the oldest child, for no other reason than his or her status as the eldest. Other times, in order to avoid hurt feelings, all the children are named as co-agents. If the principal is childless, all the more reason to have the power of attorney conversation earlier rather than later. Talk to your client about who’s on the short list, and then bring the potential agents into the conversation. The same person should act as agent for both the financial and health care durable power of attorney, if possible. The ideal appointee should check the following boxes:

    • Excellent communicator
    • Can manage emotions during times of stress
    • Lives close enough to meet with providers, if necessary
    • Willing to claim the mantle of responsibility

    Hesitant potential agents can be difficult to convince. Encourage reluctant candidates to educate themselves on what would be required of them. If the answer is an honest and well-considered “No,” give them the opportunity to opt out without resentment.

  5. Is the durable power of attorney compliant with state digital asset statutes?
  6. Many states have adopted regulations that make it easier for agents to work with digital assets, which include a number of online relationships including shopping, travel, music, videos, email and social media. Until the adoption of new regulations, it was difficult for agents to manage these assets. They weren’t considered authorized users under the terms and conditions that govern online relationships. State digital asset statutes make it easier for the agent to assume control, but only if the assets are addressed in an individual’s legal documentation.

The complexities swirling around digital assets aren’t limited to this topic. Learn more about preparing for a digital legacy here.

Expand Your Expertise

Advisors can immediately add to their client service models by leading clients through the process of naming a durable power of attorney for finances. As clients get older, their concerns will in many cases become more complex. This presents advisors with an opportunity to provide great service and showcase broad expertise to family members and other professionals.

Submit your retirement and wealth strategies questions to Matt Sommer, head of the Defined Contribution and Wealth Advisor Services team at Janus Henderson.

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The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a professional advisor. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for use of, or any position taken in reliance on, such information.

C-0818-19243 11-30-19