One Legal Document Everyone Needs

I share this article every so often. Why? Well, because in the world of financial planning, I feel it is one of the most important topics to cover and something worth repeating at least annually. Enjoy!

When I was a new advisor I learned the hard way, there is one legal document every adult needs, regardless of your personal situation.  It is the financial power of attorney (POA).  While it is a simple document to have drafted it may be one of the most important financial documents you can have.

Years ago, I was a naïve Merrill Lynch financial advisor.  All my training was focused on one thing – bringing in new clients and assets.   While they taught me to make phone calls and techniques to bring in assets to manage, I lacked the knowledge and experience to know my clients needed more than asset allocation advice.   It wasn’t until a client’s near-death experience I realized how much I didn’t know.

I have quite a few widows as clients.  I am not sure why.  Maybe I relate to them differently because my dad died when I was young and I was raised by my mom.  One of these clients had joint replacement surgery.  She was retired and her IRA was set up to send out a monthly distribution to her bank account to pay household bills.  Every couple of months we talked and she approved selling a position to create cash for these distributions.  Well, a month or two after her surgery I needed her approval to sell.  It was then I hit a brick wall.

Voicemails were left and went unreturned.  Then her answering machine was full.  Letters were sent but still no reply.  Her account was at the point where there was not enough cash to complete her monthly distribution, however, my bigger worry was whether she was okay.  

I remembered where one of her kids worked and tracked him down.  He told me his mother had some serious complications after surgery, was now in rehabilitation and thankfully on the road to recovery.  Fortunately, she was well enough by that time to talk.  She gave me approval to replenish her cash position, which she needed to pay her medical bills.

After she got better I learned her bank account was set up to allow her daughter to write checks and pay bills.  Had her bank account gone to zero and the daughter needed to get money out of the IRA the option was to go to court.  I learned right then I would recommend all my clients get at least a financial POA in place.

A financial POA is a simple and inexpensive legal document to have put in place.  You can decide what will make it go into effect, who will be your agent, what power they will have, and how long it will last.  While you can download this form, and complete it yourself, I encourage clients to work with an estate planning attorney to develop one.   Simply, an attorney will have a conversation helping you figure out the answers to all the specifics I listed above.   

Many people may feel they will never need a financial POA, however, my personal experience is it is one of the most important legal documents you can have in place.  It is so easy to draft there really is no excuse not to, except for shear laziness, or relying on a naïve advisor who does not yet know its importance.

PS This is NOT legal advice. Be sure to speak with your attorney on this topic.