Giving Someone Else Power Over Your Investments

As the investing population ages, it becomes more and more likely that investors will suffer failing physical and/or mental health. Your permanent – or even temporary – incapacity could make managing your own investment accounts impossible. One potential preemptive solution is for you to give a power of attorney (POA) to a family member or trusted friend for your investment accounts before you become incapacitated.

A POA is a legal document that permits the person you name to make decisions on your behalf. The person who is named in your POA is called your “attorney-in-fact.” Giving someone else control over your finances shouldn’t be done lightly. Yet, it can be vital if you unexpectedly become incapacitated because of a stroke, auto accident, or other unforeseen event.

Here are a few things to consider before you grant someone else power over your investments:

• Take time to consider who you want to name as attorney-in-fact over your investment accounts. Don’t let anyone pressure you into signing a POA. You are not required to name a family member as your attorney-in-fact. Unscrupulous individuals – including family members – have misused POA’s for their own benefit, rather than acting in the best interest of the granter of the POA. It is essential that you name someone that you trust completely and that he or she has a basic idea of your investment goals and overall financial situation, including the sources of your income, and how you plan to pay your living expenses if you become incapacitated.

• You can limit your POA. A POA should reflect exactly what your attorney-in-fact is allowed to do on your behalf. You can limit the POA to only specific investment accounts, or apply it to all financial matters. You can also limit the types of decisions your attorney-in-fact may make. For example, you can specify that he or she only be permitted to make trading decisions in your brokerage account (buy, sell or hold), but not be permitted to transfer or withdraw funds from the account, or to change your named beneficiaries. Or, you can make the POA broad so as to give total discretion over all of your financial affairs to your attorney-in-fact.

• If you are granting a POA with the intent of giving someone the ability to manage your finances after you become incapacitated, it should be a “durable” POA. If your POA is not durable, it will automatically be revoked if you become incapacitated which will defeat the purpose of the POA. If you don’t have a durable POA, and you are unable to manage your affairs, a court may have to appoint a guardian or conservator to act for you.

• Don’t just sign the POA and forget about it. Signing a POA will do no good if your brokerage firm, bank, and the person you named don’t know about it. Make sure the institutions and individuals who will be expected to act on the POA have a copy of the POA. In addition, if the person you named as your attorney-in-fact dies or becomes incapacitated, or you no longer want them to be your attorney-in-fact, take steps to revoke or change your POA. Be sure to give the new POA to everyone who received a copy of the prior POA.

• Once you have decided who you want to name, meet with an attorney who can make sure the POA complies with the law in your state. An unenforceable POA is not worth the paper it is written on. Some brokerage firms have their own form POAs so you should ask your broker about this.

Thinking about your potential inability to manage your finances is not a pleasant task. With some preemptive planning, however, you can make the best of an unfortunate situation.

If you would like to consult with an attorney at Rabin Kammerer Johnson regarding a securities matter, please contact us online or call 561-659-7878 or Toll Free 877-915-4040.