In my practice, I deal extensively with agents—an individual with authority to act on behalf of another individual. For me, the need to ensure that you have named an agent to handle all aspects of your affairs is so obvious that I forget most people don’t think in these terms.
The majority of people believe that they will always be able to handle their own affairs and that disabilities and death are the other guy’s problem. Unfortunately, none of us can escape death. And if we are fortunate to live long enough, there will likely come a point in time when we need the assistance of others because of some level of disability. The fact of the matter is, if you are fortunate enough to live into your eighties or nineties, you will likely need some help from family or friends to handle your affairs.
So, naming someone else to assist you in various aspects of your life, and death, is a good idea. The common documents used to name someone as your “agent” is a power of attorney, an advanced health care directive, and a last will and testament. Powers of attorney and advanced health care directives enable someone else to make decisions for you while you are alive. Through a last will and testament, you nominate someone else, called an executor, to handle your affairs after your death. In addition, in a Will you can nominate a trustee to handle the assets you leave to the beneficiaries of your estate, typically if the beneficiary requires assistance in handling her own affairs, for instance, the beneficiary might be a minor.
When I speak to clients, I sometimes get the impression that the client doesn’t accept the fact that someday he might be disabled and unable to handle his own affairs. In fact, some times when I speak with clients, I get the impression that they don’t accept the fact that someday they will die and someone else will need to handle their financial affairs for the benefit of the beneficiaries of their estate.
Naming an agent can be one of the most important decisions you make. It ensures that your affairs can be handled in the event you cannot and it ensures that your affairs are being handled by the person you chose to make those decisions.
Most married people believe that their spouse can simply make decisions for them in the event they cannot. So it may come as a surprise to learn that unless you name your spouse as your power of attorney agent, she could not make any financial decision for you simply because she is your spouse. For instance, assume that Mr. Smith suffers a stroke. Mr. Smith owns his house jointly with his wife and owns a 401(k) in his name alone. He also owns several bank accounts jointly with his wife.
Mrs. Smith could access the joint bank accounts without a power of attorney, but without a power of attorney, Mrs. Smith would not be able to access any of the funds in Mr. Smith’s 401(k). Mrs. Smith would not be able to mortgage or sell the house she owns jointly with Mr. Smith unless she as a power of attorney for him.
Without an advanced health care directive, Mrs. Smith may have difficulty accessing Mr. Smith’s health care information. Mr. Smith’s health insurance company may not speak with Mrs. Smith. The Health Insurance Portability and Accountability Act, commonly known as HIPAA, prevents health care providers and insurance companies from sharing your health care information with anyone except your designated health care personal representative.
Assuming Mr. Smith passes away, Mrs. Smith could not serve as Mr. Smith’s executor unless Mr. Smith executed a Will naming Mrs. Smith as the executor of his estate. And while Mrs. Smith would likely be able to be appointed as the administrator of Mr. Smith’s estate—a role that is similar to that of an executor—she might be required to post a probate bond, which would cost the estate money. Having a good plan in place is simply and costs much less than you think. Putting that plan in place when you are healthy is a great idea.