Powers of Attorney: Medical versus Financial

Powers of attorney are utilized for financial decisions and medical decisions. One is responsible for safeguarding your assets; the other, your life.

So, what does a Medical Power of Attorney do? What exactly are their responsibilities as far as your estate plan is concerned? And what type of person should you choose for this ever so important, extremely vital, and in some instances, life-or-death role?

In its most basic sense, the person who possesses the medical power of attorney will make decisions for your health care should you become incapacitated or no longer mentally competent. This is the person who will determine if you live or die, if you have children, or if you ever walk again, depending on the individual situation. So, yes, taking your time with this one and really giving the matter your utmost consideration is extremely important.

Case in point: A female client needed back surgery. Unfortunately, during the surgery, complications arose and the doctor informed my client’s son (who subsequently held medical power of attorney) that either they amputated her legs thus giving her close to a 100% chance of survival, or she would only be looking at a 60% chance of making it. The son chose the amputation. When the mother awoke post amputation, she was absolutely devastated. This was not at all what she wanted. She would have much rather faced that 40% chance of uncertainty than be condemned to a wheelchair and utter reliance upon others for the rest of her life. The son made the wrong choice; not that he didn’t have his mother’s best interests at heart, but he didn’t truly know his mother as far as this decision went; he failed her wishes.

This demonstrates how critical it is to have a serious conversation with the person you choose so that the person knows your true wishes about living and dying and what quality of life means. Also, this is an example where someone like a child may not be the best choice because making a decision that increases the chance of death of a parent is not one that many children will make. The choice of your agent for your medical power of attorney is undeniably one of the most powerful roles you are giving someone in regard to your life.

The remaining part of this chapter is incredible boring. If you are not planning on serving as a power of attorney. You can skip to the next chapter. However, if you are planning on serving as a power of attorney, you need to take the time to go through it. Too often I find, that agents really don’t understand the responsibilities of being a fiduciary.

What of the Financial Power of Attorney…This person is not concerned with matters of life and death, but rather with those legal, practical, and business-related issues pertaining to your finances. What factors do you need to consider when trying to decide who should act as Financial Power of Attorney over your estate?

First, it’s important to understand the various duties associated with this position. Generally, we look at the role of the financial power of attorney in terms of the fiduciary duties to which they must attend. These are consequently among the highest duties imposed by law.

Duty of Care

In Texas, this particular duty is defined as “an ordinarily prudent man would use under similar circumstances.” The key word here is “prudent.” The problem often comes when people assign their children this role. An offspring is not necessarily equipped to handle the duties associated with your finances or with the legalities of your estate. People seem to be automatically programmed to use children as their go-to agents for their POA’s and here, unfortunately, is where I most often see problems arise.

With this particular duty, the agent needs to take everything possible into account, they need to do their research and understand all facets of the issue, and, then, they must act prudently, in good faith, and with sound judgment. Children, very often clouded by emotion, by grief, or by complicated family attachments, don’t necessarily have the clarity to act in the estate’s best interests, and, therefore, they fail to adequately preserve that estate. Or, it may be the case that the child simply isn’t financially responsible and doesn’t have the ability or inclination to act prudently.

Duty of Loyalty

Hand in hand with duty of care is duty of loyalty. Basically, this fiduciary duty requires the agent for the POA to remain loyal to the estate. So, what does loyalty entail? Avoiding and /or reporting conflicts of interest, keeping all information confidential when applicable, and seeking legal advice when matters do arise which seemingly are in conflict. The bottom line here is that the agent needs to put the estate first above his/her own interests. And again, a child and/or a spouse could easily come up against issues in which it is difficult to remain impartial and serve only the interests of the estate itself.

Duty of No Self- Dealing

Very much in line with duty of loyalty, duty of no self -dealing essentially means that the agent for the POA will not use their power to benefit themselves as far as the estate is concerned. This duty ensures that the agent does not abuse his/her authority and does not misappropriate any of the estate’s assets, thereby advantaging themselves at the expense of the beneficiaries.

Duty to Act in the Best Interest of the Principal

Again, as with the aforenoted duties, this duty requires that the agent named for POA act in accordance with the principal’s wishes, honoring their legacy and estate planning. As with all other such duties, they must act in good faith, fairly, prudently and as would most correspond with the directives of the principal. The named agent is expected to act within the scope of the authority thus granted.

This just touches on the various fiduciary duties imposed on the agent of a financial power of attorney. Additionally, beyond the larger responsibilities and more moral obligations, under the Durable Power of Attorney Act, your agent for your financial POA must:

- maintain records of each action taken or decision made on behalf of the principal;

- maintain all records until delivered to the principal, released by the principal, or discharged by a court; and

- if requested by the principal, provide an accounting to the principal that, unless otherwise directed by the principal or otherwise provided in the Special Instructions, must include:

(A) the property belonging to the principal that has come to your knowledge or into your possession;

(B) each action taken or decision made by you as agent or attorney in fact;

(C) a complete account of receipts, disbursements, and other actions of you as agent or attorney in fact that includes the source and nature of each receipt, disbursement, or action, with receipts of principal and income shown separately;

(D) a listing of all property over which you have exercised control that includes an adequate description of each asset and the asset's current value, if known to you;

(E) the cash balance on hand and the name and location of the depository at which the cash balance is kept;

(F) each known liability;

(G) any other information and facts known to you as necessary for a full and definite understanding of the exact condition of the property belonging to the principal; and

(H) all documentation regarding the principal's property.

Therefore, you can see how essential a choice this is to make as far as the management of your estate goes. It has been my experience that it is best to first look to your spouse to fill this role. Usually, this is a solid choice and perhaps the person who understands your financial situation and subsequent wishes most intimately. However, it could be the case that your spouse isn’t in a position to handle estate matters; for instance, they may not be able to manage large sums of money. For whatever reason, you would then want to look to a Certified Public Accountant or a financial advisor (if the advisor is allowed to by his or her broker-dealer). Financial affairs, especially of this magnitude and complexity, are often best entrusted to a financial professional. If you don’t have one—get one, it’s that important. Often family members aren’t knowledgeable enough or fiscally practiced enough to handle such estate matters prudently and effectively. They are more than likely amateurs being tossed into a ring of big-time financial responsibility without any training whatsoever. The most likely outcome: knock out in the first round.

The Caregiver’s Conundrum

“Earth provides enough to satisfy every man’s need, but not every man’s greed.”
Mahatma Gandhi

A lady, Ivy came to see me regarding her mother’s estate. She’d been taking care of her mother and acting as her agent for her financial POA for quite some time. From years of constant attention and caregiving, she felt entitled to the use of her mother’s money. Her brother, on the other hand, did not see things this way. Rather, he basically accused her of having stolen their mother’s money to the tune of about 1.5 million.

Ivy had purchased a home for her mother and her to live in using the assets of her mother, but putting the deed in her own name. When she went grocery shopping, she used her mother’s money to buy groceries for both her and her mother. She was joint owner of her mother’s bank account ensuring that upon the death of her mother she would inherit the account. The list goes on. Righteously, she argued that she had to quit her job, moved away from her children, and spent the majority of her time caregiving; therefore, she was entitled to this money. Her brother had done absolutely nothing. In addition, he had only visited once in the eight years.

I, however, had to show her that while she may have a great argument as to why she deserves the money, the law was not on her side. In fact, she had committed multiple civil and criminal offenses. First off, if she claimed the money was hers, then she must have stolen it from her mother. If she claimed that she earned it by taking care of her aged mother, then she had income which she failed to claim on her taxes. Looking over the evidence at hand and talking to Ivy, it appeared to me as though she’d misappropriated over $300,000 of her mother’s money. Her brother could actually, in this case, ruin her life.

Adamantly, she insisted that this is what her mother wanted. Again, trying to reason with her, I pointed out that she was an agent for her mother because her mother was mentally incapacitated, which meant that any wishes expressed during this time would be invalid as she was not of sound mind. Rather, it was the will created while her mother was mentally competent that would hold up in court. That will incidentally showed that the mother wanted her property and assets distributed equally among her children.

Had a financial advisor or legal professional been given POA in this instance, Ivy would not be in a very precarious situation. This third party could have walked Ivy through the proper way to be compensated for her work and time. The family might not be at odds and the estate matters would most likely have been settled without such rancor and much more smoothly. The fact of the matter is, had the woman not been the agent for the financial POA, but rather that role given to a financial advisor or other financial professional, she would not have had the chance to misappropriate her mother’s funds and land herself in some potentially big trouble.

I have had clients argue that the way in which to avoid the need to appoint a POA is to co-own an account with their child. Again, maybe not the wisest strategy when it comes to the neutral, uninvolved and impartial handling of your money. Carol, a 90-year-old woman, came to see me about $100,000 missing from her bank account. After signing a POA, she granted me authority to go and speak to the bank on her behalf in order to get to the bottom of the missing funds. Come to find out, her son was a co-owner on this particular account. After having failed to pay his taxes, the IRS subsequently took all of the money from the account. How could this have been avoided? If she had assigned a qualified agent for the financial POA rather than placing her son’s name on the account, her money would still be there.

The choice of Executor, Trustee or agent for your Power of Attorney is not one you make with your heart, or in line with tradition, but one you make with your head. Yes, you may love your children, but ask yourself if they are truly in a position to make the best, most prudent decisions for your estate. Are they capable? Have they dealt with these types of matters before? And most importantly, ask yourself if you can trust them to honor your legacy, preserve your estate, and do what’s in the best interest of all the beneficiaries.

When choosing a Financial Advisor as your agent for your financial POA, there are a couple of things that you may want to determine first. Speak to your prospects regarding their ability to act on your behalf if you are incapacitated. Sometimes the broker-dealer will not allow the financial advisor to act in this capacity because of the potential conflicts of investing monies. Secondly, you need to find out if your financial advisor is a fiduciary. Some financial advisors are not fiduciaries because they work for the financial institution, and, therefore, appointing them as an agent for the financial POA might create a conflict of interest because their duty of loyalty will be with the financial institution of which they are associated. Finally, there is that nagging question of trust. The purpose of this chapter--to discover “who do I really trust?”--should be your guiding mantra when trying to figure out who to appoint as your agent for the POA. I would hope that you do trust your financial advisor to be your agent for your financial power of attorney; after all, you are taking their advice on major financial matters and letting them help you to make important fiscal decisions. If you don’t trust them to handle your estate, then why are you using them in the first place?