In my last blog, I discussed Britney Spears and guardianship (known as conservatorship in California). Guardianship is a judicial procedure whereby a Court appoints a guardian to oversee and control a person’s finances if that person is deemed incapacitated.
If guardianship is a ride you’d like someone else to take, I don’t blame you.
But how can you avoid guardianship? Is there a tool that allows you to appoint someone to make financial decisions on your behalf if you become incapacitated? The short answer is yes, and it’s probably something you’ve heard of before. It’s a pre-incapacity planning tool known as the Durable Power of Attorney.
The Durable Power of Attorney
For those of you who are not familiar with a Durable Power of Attorney, here’s a refresher.
A Durable Power of Attorney, or DPOA, is a document that allows you to name an agent (also called an attorney-in-fact) to manage financial matters when you, because of incapacity, are unable to manage your own finances.
It essentially allows your selected agent to do what a court-appointed guardian would do but without Court oversight or interference. That is unless your agent attempts to exploit you in your weakened condition.
This leads me to the crux of this discussion: Choosing an agent.
How to select an agent
Choosing an agent is as important as choosing to execute the DPOA in the first place.
This is because the DPOA grants your agent an extraordinary amount of authority to manage your financial affairs. It is important not to make your decision based on emotional impulses.
Typically, I advise clients to choose a responsible family member, but that doesn’t mean they always listen.
Let’s look at an example. Imagine you’re thinking of executing a DPOA and are trying to decide between your son and your daughter as an agent.
Your youngest son has always been your favorite child. Understandably, your first inclination is to name him as your agent. But your first inclination isn’t always the best one to follow. Sure, you have an emotional attachment to him, but that emotional attachment may have blinded you to the fact your son has a gambling problem. And perhaps that problem caused him to make some bad bets with dangerous people, and those dangerous people are looking to collect.
It goes without saying your son is the last person you want to have access to liquid funds.
Now, let’s take a look at your daughter. You love her, but she wasn’t always your favorite. She does, however, possess several qualities that make for a good agent. She’s responsible, cares about your financial wellbeing and has no ties to organized crime.
In this scenario, your best bet is to choose your daughter as your agent.
Careful consideration of an agent is critical
My advice to clients on choosing an agent to think very carefully about their choice. Picking the wrong agent can cause your pre-incapacity planning to backfire spectacularly.
If the client is married, the spouse is likely the most obvious choice.
In circumstances where a spouse is not an option, the choice of an agent isn’t so cut and dry.
The key is to remember that the person you are choosing will have access to all of your finances and will be able to exercise considerable authority in the management of those finances.
I’m quite confident that, had she been given the opportunity, Britney Spears would’ve thought twice about choosing her father as her agent. Alas, she apparently didn’t execute a power of attorney prior to being deemed incapacitated.
But you are not Britney Spears, and neither am I. We still have the opportunity to execute a power of attorney, and to choose a responsible agent to manage our finances in the event that we are deemed unable to do so.