Many Americans spend a lot of time and effort in managing their finances. While most are worried about how the coronavirus (COVID-19) will impact their income—whether that’s because they are temporarily furloughed, find themselves suddenly without a job, or watching their investment and retirement accounts dwindle—there is another way COVID-19 can wreak havoc on American’s finances: lack of incapacity planning.
As the coronavirus continues to expand across the country, thousands of Americans are unable to carry out normal financial responsibilities because they are too ill, or they are stuck abroad and unable to travel home, or from a lack of resources due to being isolated at home.
While feeling healthy, individuals should plan ahead now and ensure that someone will take care of their financial duties by setting up a Financial Power of Attorney. This important legal document will not only protect your finances should you fall ill from COVID-19 but also from any events that might leave you incapacitated, like an injury or accident.
A Financial Power of Attorney (FPA) allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become mentally incapacitated (unable to make your own decisions) due to illness or injury. Without this document, bills won’t get paid, tax returns won’t be filed, bank and investment accounts held in your name will become inaccessible, retirement distributions can’t be requested, and property can’t be bought, sold, or managed.
If you get sick and are unable to make or communicate your financial decisions and don’t have an updated FPA in place, a judge can appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship or conservatorship.
Why would a court do that?—You may ask. As an adult, no one is automatically able to act for you, you must legally appoint them through the use of an FPA. Without it, you and your loved ones could lose valuable time, money, and control.
WORD OF CAUTION: Don’t think you’re protected just because your assets are held jointly with your spouse, child, or family member. Here are three reasons why you shouldn’t rely on joint ownership:
- Limited power. While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners.
- Tax liability. By adding a family member’s name to your accounts or real estate titles you might be saddling them with gift tax liability.
- Property seizure. You read that correctly. If your joint owner is sued then your property could be seized in order to pay their debt.
If you’ve already got an FPA, make sure yours is kept up to date. An FPA can become “obsolete” in as short as one year. Many institutions don’t want to rely on stale, outdated documents. Depending on your circumstances, a stale, obsolete power of attorney may not be able to help you and your family with insurance contracts, retirement plans, banking and investment accounts, online personal accounts such as email, Facebook, Instagram and LinkedIn, and elder care and special needs planning. If it’s been more than a few years since you’ve signed your power of attorney, it might be time for a fresh one.
Regardless of your priorities, there is a financial power of attorney that’s right for your situation and goals. Determine your specific needs while you are of sound mind. Of course, nothing tops the advice and recommendations of an attorney experienced in these matters.