A recent article in the New York Times described how financial mistakes can be an indicator of cognitive decline. The story discussed a woman who made an impulse buy of a pickup truck on eBay one night and when she got the email the next morning to arrange delivery, she realized she didn't remember making the purchase. It wasn't the only time she had this happen to her, she would also buy things like shoes, hospital scrubs, and garden gnomes and be surprised when those boxes would later arrive at her house. In her case, the doctors believe that these are long-term results of many concussions she had when she was a competitive horseback rider when she was younger. One way that she and her family could have protected her assets would have been to use estate planning tools like a power of attorney or a trust.
Using a Power of Attorney
If you're buying little things on Amazon late at night after a long day or a night out with friends, it may not be an indication that you need a power of attorney. That's become far too common these days. But, if you are buying very large items, like cars and real estate, and are unable to pay your monthly bills because of it, it may be time for you to consider some of your options.
One common option is a power of attorney, a document that will allow someone to help you manage your finances. By signing the documents, you are giving someone the ability to make decisions in specifically designated areas of your life (if you need someone to make medical decisions for you, there is a separate form for that). The document normally has a list of different powers that you can choose from or a "catch-all" power at the end that grants the person all of the powers in the list. You can choose what powers to grant, you don't need to grant them all. It's common that you execute a power of attorney for a real estate closing, for example, if you can't attend the closing meeting.
There are also options that allow you to only grant those powers if you become "incapacitated" - it's referred to as a "springing" power of attorney. If you don't need the power of attorney to take effect right now, this is a good option to consider. Especially if you end up in a situation like the woman from the newspaper story, this can help you make sure that your assets can be protected if you begin to encounter dementia issues.
A power of attorney form isn't complicated (in fact there's probably an official form for the state you live in), but it's incredibly important that you get the language right and the correct signing formalities observed. If you fail to do that, your bank or other institution may decline to honor your wishes.
You Can Also Use a Trust
A power of attorney is a quick and easy way to manage your financial affairs. But for some people, more than just that form is needed. In those cases, it may make more sense to have a trust prepared so that assets can be managed by a trustee. One primary difference with using a trust is that the trust will be the one to own the assets, you won't own them anymore. There will be a person (or company) who is the trustee - the person who will manage the assets of the trust. Unlike a power of attorney, this is a much more involved process and one that you shouldn't just try to do yourself.
Which Method Should You Use?
You shouldn't just download one size fits all, mail-merged documents from a website and you shouldn't decide that you should use a power of attorney or a trust just based upon reading a blog post (even if it is one I wrote). You should speak to an attorney or your financial advisor who understands your financial position and see what they recommend.
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Next Steps
If it's time to consider a power of attorney or a trust, or if you just would like more information so you can make an informed decision, let's set up a Legal Strategy Session and review the best options for you.
