Planning Reflection | July 15, 2022
Personal independence and self-sufficiency are core elements of our national narrative. Although a high value is placed on these characteristics, our lives regularly rely on the support of others. In the financial realm, this “reliance” often means assembling a team of people to ensure you have support and resiliency when you need it. This includes professionals such as financial advisors, tax preparers, and estate attorneys; it also includes trusted people who can step in to act on your behalf when you’re unable to. We’ve talked previously about estate planning and how the process provides peace of mind for you and your heirs. A key component of a complete estate plan is naming a power of attorney.
What is a Power of Attorney
A power of attorney (POA) is a legal authorization that you (the “principal”) give to another person (your “agent” or “attorney-in-fact”), allowing them to act on your behalf. There are two types of power of attorney: financial and medical.
Financial power of attorney allows your agent to transact as if they were you. Financial powers of attorney may take effect immediately, or they can be limited to a specific timeframe or after you are incapacitated. The powers they grant can be very broad, or they can be limited to specific powers or apply only to specific transactions.
Medical power of attorney allows your agent to make medical decisions for you if you are incapacitated. In California, medical powers of attorney are named through an Advance Healthcare Directive. Beyond naming your agents, a healthcare directive also allows you to specify your wishes should various medical circumstances arise.
We are focusing on power of attorney, which is only in effect during your lifetime, but many of the same financial powers and responsibilities apply to the other successor agents in your estate plan. This includes the executor of your estate after you die, as well as your successor trustee if you have a trust. Though each of these roles fulfills a different purpose, the same person might serve in all of them, highlighting the importance of naming a trusted agent.
The Experience of Naming Your Agent
The act of granting power of attorney can feel quite different depending on the circumstances. For instance, if you’re buying a house, but you’ll be out of the country at the end of escrow, it can be a great convenience to name a limited power of attorney to sign and notarize certain documents for you. Because the POA is effective only for that transaction, and there is no granted authority over other aspects of your financial life, choosing an agent can be fairly straightforward.
At the other end of the spectrum, naming a general durable power of attorney can be challenging. Engaging with the idea that you might not always have the capacity to make appropriate decisions raises questions of independence and identity. It requires planning for who you want to take up the mantle of responsibility, as well as contingencies if that person can’t or won’t serve. If you’re married, your primary agent will typically be your spouse, but who should serve if your spouse can’t or if you’re unmarried? Common choices include one or more of your children, a sibling, your best friend from childhood, or a professional fiduciary.
No matter who you decide to name, you should talk to them before executing your documents, even if they seem like an obvious choice. Integrity and attention to detail are important characteristics in a power of attorney, but a willingness to serve is also crucial. Your oldest child may seem like the right choice, but they might actually be grateful if their younger sibling was named – assuming the younger sibling can reasonably take on the responsibility themselves. Or you might not want any of your loved ones to serve and decide to hire a fiduciary instead. The decision is intensely individual and personal.
It’s worth remembering that you select your power of attorney at a particular time in your life, and as your life changes, your choice of agent may change as well. When you’re younger, a sibling, spouse, or parent might be the right choice, but as you get older, it typically makes sense to name someone younger than you.
Easing the Transition
When the time comes for your successor to start helping out, you should understand that they might manage things differently from how you would have. There may be friction as they do things in their own way, and both of you may need to make adjustments to get to a more comfortable place. Shared clarity on the most important elements makes it easier to compromise on the small things.
There are several things you can do to prepare for the transition before your successor steps into their new role. Discuss in advance what want your life to look like, and make sure your agent has a clear understanding of what their responsibilities will be. This can range from managing everyday tasks like paying your phone bill to much larger decisions, such as whether to secure in-home healthcare or move you into an assisted living facility. In addition, share a general overview of your financial landscape with your agent, or have an organized way to share that information when they need it. This will help them serve more effectively when they are needed.
Our team at North Berkeley can help serve as a bridge for our clients and their agents during this transition period. It can be hard to think about giving up control, let alone actually doing it. Naming a good power of attorney and sharing your wishes, values, and financials with them will ease the transition and provide peace of mind.
About Sam Wood-Bednarz, CFP®
Sam Wood-Bednarz is a Partner, Lead Advisor, and Director of Financial Planning. He provides clients with a sense of confidence and security in their financial lives.
This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.