When baby boomers come knocking at the financial advisor’s door with a power of attorney in hand, the advisor should peruse the POA document very carefully and also the boomer’s ID, say financial experts.
If something doesn’t seem right or if the transaction could create grief for loved ones, be prepared not to participate in the transaction, says Jerry Bateman, owner of Financial Coaching Inc., Oviedo, Fla.
“With identity theft issues today, you can’t be too careful,” says the planner. “And you don’t want to end up in the middle of a fight” with family members and other interested parties.
The subject comes up because more and more people today hold POA documents for their parents, relatives and even friends. This is an outgrowth of financial professionals’ decades-long campaign to get consumers to set up POA documents along with wills and other planning documents. The result is that advisors in insurance, banking and securities need to bone up on how to work with POA-initiated transactions.
A POA document designates another adult to handle various personal assets on behalf of a grantor who is still alive. (A successor trustee can do this for assets inside trusts.) The POA’s power can end at the grantor’s death–or before, if the document so specifies or if the grantor revokes the document. The main types of POA documents are shown in the box.
In a financial practice, boomers might use POA documents to liquidate accounts, transfer funds, make policy loans or even set up an annuity or purchase insurance, all on behalf of the grantor.
“You need to be sure the person you are talking with is the person named in the POA document and that the transaction being requested is permitted by the terms of the document,” says Bateman.
“Even if the grantor meant the POA to have total control over his/her accounts and dealings, the advisor should still review the document,” says Heather Downey, a partner in the Birmingham, Ala., law firm of Friedman & Downey, PC.
Her reason: “The potential for rip-off is there. Also, the potential heirs and the next of kin may object to what the POA is doing. They may challenge the POA’s decision to move some money, for example. They may go to court to challenge the POA document itself, or they may charge that some action is not in compliance with the terms of the document.”
The basis of such challenges is that the POA serves in a fiduciary capacity, says Sally Mulhern, an estate planner and partner in Mulhern & Scott, Portsmouth, N.H. “If the POA has done something illegal, the POA can be sued for breach of fiduciary responsibility,” she says. “The same is true if POAs do something in their own self-interest or to benefit themselves.”
Unfortunately, she adds, such things do happen. “I know of six cases where this has occurred. A family member or caregiver endears him- or herself to the person and then takes advantage” via the POA.
This is a boomer issue, adds Downey, because “it’s almost always boomers who have these powers.” The 20- or 30-somethings still are dealing with getting started in adult life or they have young families, so they are not named as often to be POAs, she says.
“If the boomer is under financial stress, such as needing to find money to pay for a child’s college education, and if the boomer has the POA, the temptation is there,” Downey warns.
Not everyone who shows up to move money or change beneficiaries is acting in self-interest, the experts emphasize, but it is the responsibility of the advisor to check it out first–just in case.
Bateman’s advice: “Do your due diligence on the document. Read it over. Talk to the attorney who facilitated the document, and talk to the family members, too, if they can be reached. Approach it as a team, with everybody informed and consulted.
“If something smells fishy, check it out first,” Bateman adds.
The same holds for financial companies–the insurers, banks and securities firms that process the transactions, Bateman says. “Companies have the same liabilities advisors do when working with boomers who have POAs.”
This applies even when the POA is from a known client and the boomer who holds it is also known, Bateman says.