Deciding whom to name as power of attorney, executor and possibly trustee is something that baby boomers are finding they need to do.
Guess who is often the first check point for making this very important decision?
It’s not the attorney, say experts. It’s the boomer’s trusted financial advisor.
That means financial advisors need to be up to speed on the relevant issues and be prepared to discuss them without offering legal advice. Some ideas follow.
The power of attorney is named to act on the boomer’s behalf for legal and financial purposes (typically, but not always, when one is incapacitated). The executor is the person named to handle the boomer’s estate. The trustee is the person or entity that handles the boomer’s trust on behalf of the boomer.
“The legal work always takes place at the law firm,” stresses Hamilton Poynor, president of Poyner & Associates, Inc., Brimingham, Ala. “But we work side by side with the attorney, the client and the accountant too,” he adds.
Often, says Poynor, the advisor’s role is to help air considerations about family relationships, the financial documents that may be impacted, and the financial goals and objectives that might be affected.
“It needs to be a coordinated effort,” agrees Michael Altman, a certified public accountant and senior financial advisor with Ameriprise Financial Services, Inc., Dunwoody, Ga.
Once a year, he says, the advisor and client should go through the various documents that name beneficiaries, POAs, trustees, and so on, and ask “are these up to date,” and “do you want or need to make any changes?”
If the last review was 10 years ago, a lot will have changed, Altman explains.
For instance, if the children were teenagers during the previous review, they may now be age 20 to 25 or more. “If so, many parents will start considering making the kids executor, trustee, etc., he says.
Sometimes, the discussion makes clients realize they have lost the documents, forgotten their location, or failed to let their children know they have such documents and where they’re located, Altman says.
And sometimes, the boomer realizes that some documents still name an ex-spouse for certain roles, he says. When that happens, Altman says he tells the client “you probably don’t want your ex to be here.”
The important thing, says Altman, “is to talk about estate planning strategies” when bringing up the topic of who holds, or should hold, powers for the boomer.
“You don’t want to start talking about the legal agreements themselves,” since that is the job of the attorney, he says.
Helping clients with this decision is “a huge responsibility for the financial advisor,” says John Schwan, principal of Schwan Financial Group, LLC, Aberdeen, S.D., and an agent with New York Life.
It’s also a big responsibility for the boomer to select the person to perform these duties, he says.
“Some people think it’s a favor, to be named (or to name someone) as executor,” he points out. “They take it as recognition of respect and trust.”
When that is the case, “clients need to be educated on how big a job this is going to be,” Schwan says. The advisor should help the boomer see that “this matters.”
Many boomers just assume that a family member will and can perform these functions, say advisors.
But, depending on state of domicile, that may not be the case, unless the family member has the relevant legal document, Schwan cautions. For instance, if a close family member wants access to the boomer’s safe deposit box but lacks a document allowing that, he or she may have to go to an attorney and go through the legal process to make that happen, he says.
In the end, the large majority of clients do select family members to hold POAs, executors and other powers, say the experts.
But not all family members are trustworthy, cautions Altman. So, he says he approaches the choice by asking such questions as: “Who do you trust? Who is dependable and good with follow-through? Who is good or bad with money? What about their health prospects?”
Altman shies away from recommending outside professionals–a bank trust department ad corporate trustee, for instance–but he says he will do so “when it makes sense.”
Sometimes, a client’s age and life stage is a factor. Younger boomers, in their 40s, tend to focus on planning, setting up wills, etc., points out Schwan. They reference current relationships without realizing these documents may be in effect for 30 to 40 years, he says.
But boomers in their 50s and 60s, and people reaching their 70s, are focused on reality, Schwan continues. Loved ones may have died and others, once close, may now be out of touch. They are now dealing with inevitability, not just planning, he says.
This sense of inevitability can help the advisor open up the discussion about who to name for what powers, he indicates.
Relationships between family members should be weighed, he notes, since not all family members get along. After the death occurs, he adds, “few families hold hands and sing Kumbiaya.”
This can be a “very painful discussion,” he says. But, to be valuable to the client, the financial advisor does need to invite the discussion.
Some advisors bring in the family and let everyone know what is being done and what will happen, Schwan says. That way, he says, the client doesn’t have to be alone with a child who might counter with a “but why would you do that?” The advisor can bring an independent voice, he indicates. “The advisor can say, ‘here’s why it serves you best.’ And the advisor can educate on why and how it works.”
This approach also offers the advisor an opportunity to work with the children and grandchildren, who may later become clients in their own name, he says.
“In my experience, many boomers never even give it (naming powers) a thought,” says John H. Curry, senior associate at North Florida Financial Corp., Tallahassee, Fla. So, he says, “when I ask ‘who has the documents that will enable them to step in for you if you are incapacitated?’ it rocks their world.”
“Many don’t know that it is not automatic that a family member will take over. They just assume it.”
Curry says the subject often comes up when he works with clients on establishing a Living Balance Sheet, which is an online tool provided to reps by Guardian Life. Advisors and clients use the tool to organize client financial information and documents.
The subject can also come up when the advisor asks: “Do you have a will? A living will? A health care directive? A durable power of attorney?”
The response? Often times, “it’s deer-in-the-headlights,” Curry says.
Some probably haven’t done wills or the other documents because they don’t want to deal with their own mortality, he speculates. Others may avoid it because they don’t know who to name.
Where couples are concerned, “some don’t even talk about money issues,” let alone such documents, Curry says. “Sometimes that’s because they don’t want to fight, or they lack communication skills, or they just don’t agree.”
His response might be to say, “there are a lot of things we don’t want to do, but let’s do the planning now” to get it over with.
He also may say, “I know you don’t know who your choice would be (for the powers), but who would it be right now if you had to choose?” Most clients usually have an answer, he says.
With couples, he might say: ‘if you don’t do this now, how do you expect to do it when you are incapacitated?’”
Curry says he sees his role, as financial advisor, as getting the clients to do the talking and the planning. “I tell them, ‘my job is to inform. Yours is to go to the attorney and find out what to do.’”
Sometimes he goes to the attorney with the client. “The time spent there is a small price to pay if my client is taken care of,” he says, “especially when you consider the alternative… which is chaos.”
In fact, he says “the financial advisor may be the only person who motivates the client to go to the attorney.”