Protecting Your Financial Plan From Family Members With Good Intentions

Last week I discussed the risk of having a long-term financial plan dismantled late in life by adult children, usually with good intentions. What can you do to guard your financial plan against this possibility?

Here are several suggestions to consider.

1. Clarify for yourself if there is value in retaining your financial planner after retirement and into old age. One common misperception is that financial planning is no longer needed when one retires and firing a long-term planner will save money. In reality, having professional support above and beyond managing investments is critical to emotional and financial wellbeing in one’s senior years. It can be vital as you gradually lose the cognitive ability to negotiate financial decisions and need an advocate. It’s also anxiety-reducing for surviving partners and executors to know that a financial planner has copies of all estate documents, insurance policies, tax returns, titles, and other important documents. This supports family members during a time of great grief and sadness and provides continuity with financial decisions during the period of grief and adjusting to the ”new normal.”
2. Understand that there is often an inherent conflict of interest when those holding the power of attorney are also beneficiaries to the trust or will.
3. Consider appointing only one power of attorney. Often people will appoint all their adult children as co-agents. This is typically a poor decision that may create conflict rather than reduce it. Name someone as your agent who is trustworthy and who understands finances, investments, and your financial situation. Appointing a child who lives near you may be helpful, as well.
4. Be sure the person holding your power of attorney knows they hold that power and agrees to the responsibility.
5. If you don’t have children, or don’t have a child that is knowledgeable about finances, consider appointing a knowledgeable friend or professional as your power of attorney.
6. Consider appointing a competent agent who is not a beneficiary of your estate. There are trust companies and senior advocates willing to take on this responsibility. They are not inexpensive. Yet having someone competent making decisions on your behalf could ultimately be far less expensive than having decisions made by someone who is not competent or, at worst, is out to benefit themselves.
7. Discuss your financial planning and your relationship with your advisor with your children. Encourage them to adopt a beginner’s mind, become curious, ask questions, and take time to explore and comprehend the planner’s process and history with you. Help your children understand why the advisor has earned your trust.
8. If you appoint one of your children as your power of attorney, bring them into meetings with your financial planner long before you anticipate their services will be needed. This gives them time to form a relationship with the planner and learn the philosophy and strategies of the financial plan.
9. Understand the consequences of depleting your assets. Outright theft or misuse of funds by an agent isn’t unheard of. Poor decisions by a person holding your power of attorney can also be disastrous. In addition, sometimes families think it might be a good strategy to distribute assets to children so parents who need long-term care at the end of their lives will qualify for assistance. Even aside from the ethical and legal considerations, people may not understand that Medicaid, or Title XIX, provides only the most minimal standard of nursing home care.

One of the goals of long-term financial planning is to provide resources to make your later years as comfortable as possible. Care in choosing a power of attorney is one way to ensure that goal is carried out.

Related: The Biggest Risk to a Well-Designed Financial Plan in Your Later Years Could Be Your Children