It's easy to understand the importance of a power of attorney. Your clients have hired you in part to protect their families from financial hardship in emergencies, when they are sick or unavailable.
At Oak Point Financial Group, we recently had an experience with a client in failing health that convinced me of what we, of course, already knew: It is essential to obtain a power of attorney for every client and keep it on file.
The circumstances were sadly familiar. The husband was suffering from a form of dementia. When his condition suddenly and rapidly worsened, his wife was forced to bring him to a nursing home for full-time professional care. She got in touch with our office to inquire about his long-term care-policy.
Her advisor had arranged for coverage on both clients when he had completed their comprehensive plan. At the time, he was a captive agent with a broker-dealer. When he moved to our office, he evaluated their health and decided against replacing the policy. This meant he was no longer the agent of record on the policies.
But the client's wife was asking for help, so he called to request claim forms. Because he was neither a policyholder nor the agent of record, the insurance company refused. As it turned out, the company wouldn't send claim forms to the wife either because she was not a policyholder.
What an impractical situation. Of course, spouses and other family members need to be able to submit claims for long-term-care policy holders. But the representatives of the insurance company insisted that only the agent on record, the insured or a representative named in a binding and effective power of attorney could request a claim form.
The advisor's notes indicated that the client had completed a power of attorney, but there was no copy of it on file. Upon further investigation, he learned that in fact, there was no effective power of attorney in force. Apparently the clients had intended to visit an estate planning attorney, but they never completed the process.
The wife, who was already faced with the loss of her husband's company at home, was forced to consult with two attorneys before her costs could be covered. Ultimately, she had to seek a conservatorship from a probate court judge declaring her husband incompetent and naming her as his representative. A conservator does not have any significant powers that make the arrangement preferable to a simple power-of-attorney document. The oversight burdened the wife with considerable stress and expense at a difficult time.
We took instant action to protect other clients from having the same experience. The first step, clearly, is to check each file for a power-of-attorney document and check its date. If there is no document-or it is over five years old-the next step is to ask each client if he or she has a power-of-attorney agreement. For clients who have given someone a power of attorney, we ask if that person is still readily available and willing to step in if needed.
We ask the client to allow us to keep a copy of the document in our files. That way we can produce it for insurance companies and broker-dealers or in any other circumstances when we need to accept instructions from the designee-the person granted the power-and take action on behalf of a client.
When the document is more than five years old, we ask clients to sign an affidavit of effectiveness, a notarized document indicating that the power of attorney is still in force. You may be able to obtain the basic forms for affidavits of effectiveness from your custodian or broker-dealer.
If clients do not have a power of attorney in force, we recommend that they meet with an estate planning attorney immediately to review their overall estate plan. We always recommend that clients discuss wills, trusts, powers of attorney and health care proxies with estate planning attorneys. Wills and trusts may seem more important, but in fact, powers of attorney and healthcare proxies will have critical effects during their lives.
So I have pushed them to the top of my to-do list. I work hard to persuade busy or reluctant clients not to neglect them.
You have probably experienced clients' reluctance to complete their estate plans. In some cases, I have reminded people so many times that I feel self-conscious about it. In those cases, I ask for permission to "nag" them and make a joke out of the fact that I have become a pest.
After a couple of "naggings" at meeting, they get motivated to complete the work. Several clients have called or written me notes after their first meeting with an attorney, feeling good that they don't have to face me again without having completed the task. On several occasions, I have had an attorney meet the client at my office (with the client's advance permission, of course). Recently I have found that telling a version of the story about the client who needed to go through the conservator process provides some real-world motivation for reticent clients.
What if a client is unable or unwilling to complete a comprehensive estate plan? Then I recommend that he or she visit the estate attorney's office anyway, but with the intention of creating a power of attorney and healthcare proxy.
The healthcare proxy, of course, allows clients to designate someone else to make health and medical decisions on their behalf, while the power of attorney designates someone to make business and financial decisions. These powers may be durable or springing. A durable power of attorney is in force and effective on the moment it is signed. A springing power requires a triggering event before the designee may act on the principal's behalf. The trigger might be incompetence or inability to speak.
The next step is for us to meet the designee. The typical arrangement is to name a spouse first and a child second if the spouse is unavailable. But in some cases, the runner-up is not obvious, as I recently learned in the case of a widower in his eighties.
He had several children, but the daughter who had referred him to me always brought him to his appointments and listened in on conference calls. She provided the primary assistance to her dad as he made business and financial decisions.
When he entered a nursing home, she called me to talk about how much money he would need to cover the cost of the care. In this case, he was able to indicate his consent to the changes to his systematic arrangements. However, when I asked for a copy of his power of attorney, it turned out, to my surprise, that his designee was a sister who lives out of state. I had never met her.
It is obviously much easier to help a client and his or her designee in a stressful time if the relationship has been established in advance. Designees are also likely to be beneficiaries and so for the health of your business, meeting designees and developing these relationships sooner rather than later also makes a lot of sense.
Convincing your clients to see a lawyer and do the paperwork to designate a power of attorney may not be a financial planner's first responsibility, but it is an important one. Without this important piece of paper, even the best plans can take a wrong turn.
John Knowlton is a branch manager at Oak Point Financial Group in Portage, Mich. For more information please visit www.oakpointfinancialgroup.com or contact him at firstname.lastname@example.org.
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