Financial Living Wills: Planning for Incapacity

A financial living will, also known as a durable power of attorney for finances, is a crucial legal document that allows you to appoint someone you trust – your agent or attorney-in-fact – to manage your financial affairs if you become incapacitated and unable to do so yourself. It’s a proactive step to ensure your assets are protected and your financial obligations are met when you’re no longer able to handle them.

Why You Need One

Imagine a scenario where you experience a sudden illness, accident, or cognitive decline that prevents you from managing your bank accounts, paying bills, or making investment decisions. Without a financial living will, your loved ones may face significant legal hurdles, potentially needing to petition the court for guardianship or conservatorship to gain control of your finances. This process can be lengthy, expensive, and emotionally draining. A financial living will bypasses these difficulties, allowing your chosen agent to step in immediately and manage your affairs according to your wishes.

Key Components and Considerations

• Agent Selection: Carefully consider who you choose as your agent. This person should be trustworthy, responsible, and knowledgeable about your financial situation. It’s wise to select an alternate agent in case your primary choice is unable or unwilling to serve.
• Scope of Authority: You define the powers granted to your agent. This can be broad, granting them authority over all your financial matters, or limited to specific tasks, such as managing a particular bank account or property. Common powers include the ability to access bank accounts, pay bills, manage investments, sell property, and file taxes. Clearly outline the scope of authority to prevent misunderstandings.
• When the Document Takes Effect: A financial living will can be immediate, meaning it takes effect as soon as it’s signed, or springing, meaning it only becomes effective upon your incapacitation. A springing power of attorney typically requires a doctor’s certification of your incapacity.
• Revocation: You can revoke a financial living will at any time, as long as you are mentally competent. This is an important safeguard, giving you control over the document and your agent’s authority.
• Durability: The “durable” aspect of a financial living will is critical. It ensures the document remains valid even if you become incapacitated. Without this clause, the power of attorney would automatically terminate upon your incapacity, defeating its purpose.
• Specific Instructions: You can include specific instructions to your agent regarding your wishes for certain financial matters. This might include instructions about managing investments, gifting strategies, or charitable donations.

Creating a Financial Living Will

While you can find generic templates online, it’s highly recommended to consult with an estate planning attorney. An attorney can help you understand the legal implications of the document, ensure it complies with your state’s laws, and tailor it to your specific needs and circumstances. They can also advise you on coordinating your financial living will with other estate planning documents, such as a will or trust.

A financial living will is an essential part of comprehensive financial planning. By proactively addressing the possibility of future incapacity, you can protect your assets, ensure your financial obligations are met, and provide peace of mind for yourself and your loved ones.