When and How to Formalize the Legal Authority of Another to Assist You with Managing Finances

As our clients age,  they increasingly rely upon the assistance of others for financial matters.  Our clients often want to formalize this relationship to ensure that the bank or retirement plan custodian will recognize the authority of a trusted friend or family member to give instructions.  When and how should clients consider taking this significant step?

When Should I Enlist Another to Assist Me With My Finances?

Of course, there is no magic age or time that works for everyone.  Some clients in their 80s and 90s remain fully independent.  Other clients in their 70’s need assistance.  We find a common thread where a client has suffered the loss of a spouse who was the household “money manager”.  In many marriages, one spouse has more dealings with the financial planner, the accountant, and household financial affairs.  The other spouse may contribute in other significant ways.  If the spouse who has less familiarity with household financial dealings is suddenly thrust into this role, it can be intimidating without the help of a trusted friend or family member.

Another consideration is a medical diagnosis.  A diagnosis of dementia or Alzheimer’s can be devastating for so many reasons.  It also may lead to increasing reliance on others.  Many clients come to us having recently received such a diagnosis, and wanting to affirmatively plan for their future.

Who Holds the Legal Authority to Assist Me and What Can They Assist With?

There are really two primary roles for those who can with financial matters.  “Agent” and “Co-Trustee” (or “Trustee”).  Clients may need one or both.

Clients who have completed a financial power of attorney designate an “Agent” who is vested with the requisite legal authority to act for them with respect to their financial matters.  And the authority doesn’t just relate to accessing a bank account.  The authority relates to everything that could involve finances, including filing tax returns, making insurance claims, and even filing a lawsuit.

For clients who have a trust-based estate plan and have assets titled in the name of their trust, the Agent has no authority to deal with trust assets.  It is only the “Trustee” who has the authority to deal with trust assets.  Clients who establish a “living trust” are often the sole trustee of their own trust unless and until they appoint a Co-Trustee.  By appointing a Co-Trustee, the client has designated another individual with legal authority to assist in the management of trust assets.  Bear in mind, however, that the Co-Trustee has no authority to assist with assets held outside of the trust.

Bottom line – all clients who want to designate another to assist them with financial matters need to designate an Agent under a financial power of attorney.  Clients who have assets held in a “revocable trust” or a “living trust” should consider also designating a Co-Trustee to assist with assets in the trust.

How Do I Formalize the Authority of My Agent or Co-Trustee?

To formalize the authority of an Agent acting under a financial power of attorney, there may be nothing further that is required aside from the prior signing of the financial power of attorney.  Remember that a power of attorney can be effective immediately.  Or, on the other hand, the power of attorney can lie dormant and “spring” into action upon your incapacity.  For an immediate power of attorney, nothing further is likely required for your Agent to have the legal authority to assist you.  You have signed a document that already recognizes the authority of your Agent to act.  The Agent can present the power of attorney, and may need to sign a certification that he/she is indeed the person named in the document, but should be in a position to assist immediately.  On the other hand, the Agent named under a springing power of attorney cannot act until you affirmatively “spring” the power of attorney into being.  You will likely need to sign a document, in the presence of witnesses and a notary, affirmatively allowing your Agent to act under the power of attorney, effective immediately.

To formalize the appointment of a Co-Trustee, the first step is to consult the trust document to confirm that you reserve the right to name a Co-Trustee.  Most living trusts do reserve this right to the person who created the trust.  If you do have this right, a simple document can be prepared citing the provision within the trust reserving you this right and identifying the person you wish to designate.  Both you and your designated Co-Trustee will need to sign the document in the presence of witnesses and a notary.  You will sign to make the nomination and your Co-Trustee will sign to accept the nomination.  You should have further discussions with your planning attorney before signing such a document regarding the rights of you and your Co-Trustee to act unilaterally or to delegate authority amongst each other.

It isn’t a sign of weakness or vulnerability to rely on others for assistance with your financial matters.  The estate planning attorneys at Bulman Dunie are here to help give you peace of mind as you navigate your later years.  Contact Jeremy Rachlin at (301) 656-1177 x305 or jrachlin@bulmandunie.com if our estate planning team can be of assistance.