Estate Planning Series: Power of Attorney and The Gray Area

Estate Planning Series: Power of Attorney and The Gray Area

February 07, 2024

In my last official “financial planning email” I wrote about the Importance of Beneficiary Designations. In my world, that is probably the single easiest item to correct that results in issues for your loved ones down the road.

Today we are going to discuss the Power of Attorney document (POA for short) and some common issues we see when clients attempt to put a Power of Attorney in place for their accounts.

Most of you have probably heard the term Power of Attorney and may have a good understanding of what it does. In simple terms, a POA is a document that gives another person the authority to act on your behalf and make financial decisions for your benefit. This document is almost always included in basic estate plans and I’m willing to bet that if you have a will or trust, you have a POA document. We don’t run into the absence of POA documents with our clients too often; that’s not the purpose of today’s article. What we run into is the misunderstanding of how they work and what financial institutions like ours require when it's time to put them into place.

Before I move forward, I must disclose that I am not an attorney and am not qualified to give legal advice. I also can’t speak for every financial institution and how they process paperwork. Today’s message is a “best practice” that we have experienced here at Platte River Private Wealth and that I have experienced in my 15-year career working for multiple brokerage firms.

The Financial Power of Attorney is designed to give your elected person the ability to act on your behalf on financial matters if you can no longer make those decisions. Theoretically, IF you are involved in some sort of trauma event and are unable to make financial decisions then someone can step in with this document and be granted temporary authority to pay bills, transfer funds, or make investment changes. The document is straightforward. The important thing to understand is what actually triggers the document to be valid. Just because someone walks into our office with a Power of Attorney does not give the document any authority without other supporting information. The document is a voluntary one and in order to protect the account holder there are further requirements.

We will need one of the following items:

  1. Two doctors' letters stating that the account holder is temporarily or permanently incapable of making their own financial decisions.

  2. A signed document from the account holder voluntarily signing off on this power (they must be competent).

This is most common at our firm when an elderly client wants to involve a family member or trusted person in their life to step in and help them with their finances. 

Where we see the problems are in the Gray Area – somewhere between #1 (unable to make decisions) and #2 (voluntary handoff WITH COMPETENCE).

We call this situation “THE GRAY AREA.”

The Gray Area can occur when a client has begun to decline cognitively but has not taken proactive steps to involve a family member or trusted party to help with their finances. Their cognitive capabilities have declined to a point where they really can’t make this decision for themselves but have not yet received documentation from their doctor. We typically get an email or a phone call from the adult child that they are stepping in to help Mom and have a Power of Attorney document listing them as the POA. Mom is now in assisted living and can’t sign her name physically or it’s clear she is not aware of what she is signing. By now bills have started to pile up and the emotional stress of the overall situation is very high. Until we have approved the Power of Attorney on the specific account we cannot take any direction from the Power of Attorney. We are, for lack of a better term, frozen.

Being at a standstill can cause unnecessary stress at an already difficult time. The process of getting a physician’s note and having the POA approved on an investment or bank account can take several weeks.

Sometimes the situation can’t be avoided and we work as efficiently as possible to get the document approved. What we have found is that simply educating clients and their future POAs about the process can prevent a client from getting stuck in the Gray Area. If you are designated as a POA for a family member it’s important to get the process started before the eleventh hour; better yet, have a meeting with your loved ones and their legal advisor and get the document in place before the situation requires a Physician’s letter.

If you don’t have a legal Power of Attorney document for you and your loved ones I highly recommend you discuss this with your family and consult a licensed attorney. Most financial institutions have a limited Power of Attorney form that you can put on file which does not require a separate Power of Attorney document. This form applies only to the specific account but will provide virtually the same benefit and can be done with a simple office visit and notarization.

If you have any questions about your accounts, please reach out to one of the members of our team and we would be happy to discuss this in more detail. 

Until next time.

Important Disclosures:

Platte River Private Wealth and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.