Managing your financial affairs independently requires a robust support system to ensure that your assets are handled according to your wishes if you become unable to manage them. Preparing for the unexpected is crucial for everyone since circumstances can change due to age or health issues. Without a proper estate plan, the court will appoint representatives to manage your assets, who may not fully understand your financial goals or personal wishes.
Even if you currently manage your own investments and taxes, it is essential to establish a network of key advisors who can step in when needed. You should meet with them to provide your financial statements and information, as well as to communicate your long-term goals.
Key Advisors for Your Financial Support System
- Estate Planning Attorney: Responsible for drafting and administering your estate plan.
- Accountant: Handles your tax preparation and financial statements.
- Bookkeeper: Manages your bills and financial correspondence.
- Personal Physician: Evaluates when you are no longer capable of managing your financial affairs.
- Portfolio Manager: Oversees your investments.
- Financial Advisor: Coordinates and supervises your overall financial strategy.
Developing a comprehensive estate plan is imperative for your financial protection both now and in the future. Typically, this includes creating the following four documents: A Healthcare Power of Attorney, a Durable Power of Attorney, a Will, and a Revocable or Living Trust. (State laws vary so be sure to consult with an estate planning attorney in your State.)
- Healthcare Power of Attorney: Appoints an agent to make medical decisions on your behalf if you are unable to do so. Choose someone you trust and discuss your wishes with them to ensure that they understand your preferences. Provide them with a copy of the document and consider leaving one with your doctor. Your physician or you will decide when the agent can act.
- Durable Power of Attorney: Designates an agent to manage financial accounts if you are incapacitated or unavailable. This agent can handle mail, pay bills, and file taxes. The agent only controls your individual assets and cannot act on assets held jointly, in trust, or with designated beneficiaries (e.g., retirement accounts, annuities, or life insurance). The agent’s authority ends upon your death, at which point the Executor of your Will assumes control.
Copies of a Durable Power of Attorney can be effective immediately, so don’t provide your agent with a copy unless you are ready to have them act. The exception is a “Springing Power of Attorney” which is only effective if a doctor certifies that you are unable to act. Many people leave the original document with their attorney to be released when needed. It is advisable to have a conversation with your doctor about certifying that you are unable to handle your affairs should it become necessary. If your executive function diminishes to the point that you are unable to manage your financial affairs, you will likely not be aware of it.
It is imperative that you name an agent who is trustworthy; they will have access to all your financial assets and records. While they have a fiduciary duty to only use funds for your best interest, it can be difficult to recover assets once they are gone. Another consideration in naming an agent is whether they have the time, interest, skill, and experience in managing financial assets.
- Will: Specifies how your individually held assets will be distributed upon your death.
- Revocable or Living Trust: Holds your assets during your lifetime and allows you to remain in control as the initial trustee. When you are acting “Solo”, it is particularly advantageous to create one, especially when managing your financial affairs alone. You can appoint a professional trustee, such as a bank, to serve as a co-trustee with you and a successor trustee to manage the trust when you are no longer able. Professional trustees can handle asset management, account custody, tax preparation, and distributions.
Your successor trustee can be the same individual as your Executor but need not be. As with your Agent, your Trustee should be beyond reproach. Ensure that your trustee is available and willing to serve, knows your personal situation, has experience as a fiduciary, charges reasonable fees, and maintains good communication skills. Not every individual has all those attributes, so naming a professional trustee or co-trustee may be beneficial.
To avoid probate, consider transferring the title of your assets held individually into the name of your trust while you are alive. This allows your successor trustee to manage your assets without court involvement if you become incapacitated. For individuals managing their affairs solo, funding their revocable trust while living is particularly crucial. However, if you forget to change the title of an asset from your individual name to your trust during your lifetime, your will can be designed to transfer or “pour over” your assets into it at your death.
Valerie J. Nevel, Esq.
Senior Financial Advisor and
Fiduciary Consultant
valerie.nevel@ledyard.bank