However, they never took the time to put a proper estate plan into place, never filled out their designations correctly on their beneficiary plans, and now their mental competency is coming into question. It’s important to put the following processes in place so that you, as a planner, are protected and, most importantly, so your client and their family will receive everything they are entitled to.
Planners don’t always think this way from the beginning of the relationship because when clients start working with you, they are still of sound mind. But a lot can change, even in the course of a year. I highly encourage my peers to follow the steps below to ensure the financial planning process is as fluid as possible.
1. Have a letter from the client’s general physician – When the client starts the financial planning process with you, make it a mandate that they provide a letter from their doctor stating they are mentally sound. Every year that you meet with the client, they should be required to produce a new letter from the doctor outlining their current mental competency. Planners may receive push back from clients because of the inconvenience of making another appointment, but insist on it.
2. Have power of attorney established – A financial power of attorney should be established while the client is mentally sound.
3. Next of kin waiver – If one is not established, you should require a signed document from your client giving you permission to notify a family member or other trusted friend or contact and allowing that person to act on the client’s behalf in the event your client is no longer physically or mentally capable of making sound financial decisions.
4. Maintain detailed documentation – Ideally, the client should sign an acknowledgement every time he or she refuses to follow the planner’s recommendations. This puts some safeguards in place in the case of manipulative relatives or other persuasive associates who may seek to gain control over the client. Of course, there is no way a planner can completely safeguard against a third party attempting to gain control; however, documenting all protests, including the planner’s concerns and having them signed by the client can certainly help any planner protect themselves against future liability.
5. Handling family disputes – The involvement of family members during the financial planning process is an added stress that can cause significant issues if not handled correctly. This can be especially difficult if your client is widowed or single. In this case, adult children or other close family or friends will typically step in to assist in the planning process. Family involvement may also be necessary if the elderly client is limited due to mental or physical health challenges.
In that case, the children may step in to manage the needs of the parents and assist with the financial planning aspect. In order to avoid these sometimes sticky situations, the first question to ask is: Who exactly is the client? The client must give permission to share any personal information. A letter should be created stating specifically who the client is, who should be contacted in case the client lacks the necessary mental capacity, and it should state who should receive copies of all planning information. It should also identify one person who can contact you as the planner. If this is made clear from the beginning, it should remove you from any family squabbles.