Whom Do You Trust to Make Your Financial Decisions?
You wake up and check your investments over a cup of coffee. That tech stock you have been
eyeing continues to trend upward, so you log in to your online brokerage account and buy some
shares.
Later in the day, you get a notice that your mortgage payment has been withdrawn. Sticking to
your budget, you review your monthly spending and see that you have enough saved for an
extra payment that month. That afternoon, you redeem some credit card cash back points to
pay for a work lunch.
That evening, you schedule an estimated payment to the IRS and update your spreadsheet to
reflect recent client transactions. Before bed, while watching the news, you make a note to
email your financial advisor about possibly changing investment strategies in response to an
expected interest rate cut.
Although we may not always recognize it, financial decisions and tasks are a part of our
everyday lives. They range from daily spending habits to more complex retirement planning.
You may take for granted that you are able to manage your finances. However, what if you
become incapacitated (meaning that you lack the ability to handle your own affairs due to
illness, injury, cognitive decline, or some other cause)? Someone else will have to manage your
finances for you if you cannot.
If you have an updated estate plan that names a substitute decision-maker to act in your stead,
you have control over who that someone is. Otherwise, the court will appoint a financial
decision-maker, and it may not be who you would want - or who has your best interests in mind.
Guardianship or Conservatorship versus an Estate Plan
Two-thirds of US adults do not have an estate plan,1 which effectively means that they lack an
incapacity plan (a plan for how their affairs will be managed if they cannot do it for themselves).
You may have created a will and completed other estate planning tasks, such as purchasing life
insurance and making beneficiary designations. However, you still need a documented, legally
enforceable process and plan for determining who will manage your affairs if you become
incapacitated.
To proactively grant the necessary powers to a financial decision-maker, consider a revocable
living trust and a financial power of attorney.
- A revocable living trust allows you to serve as trustee of the trust (in charge of managing
the money and property owned by the trust) while you are still able. You can also name a
successor trustee to take over trust management if you pass away or become incapacitated.
The trust agreement can specify who determines whether you are incapacitated and can
also contain detailed instructions about how the successor trustee should manage the trust.
One of the main purposes and benefits of a revocable living trust is to avoid the courtsupervised probate process, but it can also be used to help avoid a different form of court
intervention: the appointment of a legal guardian or conservator (the term may vary by
state), which is the person appointed by the court to make financial and other decisions for
you.
- A financial power of attorney is another estate planning tool that can help avoid court
intervention if incapacity strikes you. It gives one person (the agent or attorney-in-fact) the
authority to act on behalf of another person (the principal) regarding their financial matters.
A financial power of attorney is highly flexible. It can include a statement describing how
incapacity will be determined and who determines it; it can come into effect only when the
principal's incapacitation is confirmed (in some states); it can specify the powers granted to
the agent; and it can be limited or long-lasting in duration. Like a revocable living trust, a
financial power of attorney helps eliminate the need for court-appointed guardianship or
conservatorship.
Factors When Choosing a Financial Decision-Maker
When choosing a financial decision-maker, you should consider factors such as trustworthiness,
financial knowledge, and the ability to handle responsibilities under pressure. The person
selected should have a strong understanding of your values and priorities, be organized, and
communicate effectively with other key parties, such as family members or advisors.
Additionally, they should be available and willing to serve in this role, as it may require
significant time and effort, particularly during complex situations.
If nobody in your immediate circle of friends and family seems like a good candidate, a
professional, such as an attorney or financial advisor, can be chosen. However, many
professionals are hesitant about serving in the role of an agent under a durable power of
attorney, so you may want to consider other professionals, such as professional caregivers or
fiduciaries. A professional trustee or agent is different from a professional guardian or
conservator because it is a person of your choosing rather than the court's.
The bottom line is that estate planning lets you manage incapacity in advance, in the manner
that is best for you, your finances, and your family. You are free to name whomever you want to
serve as a successor trustee or an agent under your financial power of attorney and to provide
whatever instructions you want for them in your estate plan.
You may never need to rely on an incapacity plan. However, having the right people and
provisions in place gives you added protection and peace of mind just in case something
happens and you lose financial capacity. For guidance on this front, call us today to set up an
appointment.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional Counselors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
