Many Americans spend a lot of time and effort in managing their finances. While most are worried about how the coronavirus (COVID-19) will impact their income—whether that’s because they are temporarily furloughed, find themselves suddenly without a job, or watching their investment and retirement accounts dwindle—there is another way COVID-19 can wreak havoc on American’s finances: lack of incapacity planning.
As the coronavirus continues to expand across the country, thousands of Americans are unable to carry out normal financial responsibilities because they are too ill and unable to travel ,or from a lack of resources due to being isolated at home.
While feeling healthy, individuals should plan ahead now and ensure that someone will take care of their financial duties by setting up a Financial Power of Attorney. This important legal document will not only protect your finances should you fall ill from COVID-19 but also from any events that might leave you incapacitated, like an injury or accident.
A Financial Power of Attorney allows you to select a trusted family member or friend who will be responsible for managing your money and other property if you become mentally incapacitated (unable to make your own decisions) due to illness or injury. Without this document, bills won’t get paid, tax returns won’t be filed, bank and investment accounts held in your name will become inaccessible, retirement distributions can’t be requested, and property can’t be bought, sold, or managed.
If you get sick and are unable to make or communicate your financial decisions and don’t have an updated Financial Power of Attorney in place, a judge can appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship or conservatorship.
Why would a court do that?—You may ask. As an adult, no one is automatically able to act for you, including your spouse or children. You must legally appoint the through the use of a financial power of attorney. Without a power of attorney, you and your loved ones could lose valuable time, money, and control.
WORD OF CAUTION: Don’t think you’re protected just because your assets are held jointly with your spouse, child, or family member. Here are a couple of reasons why you shouldn’t rely on joint ownership:
- Limited power. While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners. Furthermore, you are unable to name a joint owner to certain assets such as IRAs or 401Ks.
- Tax liability. By adding a family member’s name to your accounts or real estate titles you might be saddling them with gift tax liability.
- Property seizure. If your joint owner is sued than your property could be seized in order to pay their debt.
- Medicaid disqualification. Putting a loved one’s name on a joint bank account or property title can disqualify them from receiving government benefits, such as Medicaid.
Only a comprehensive incapacity plan will protect you and your assets from a court-supervised guardianship or conservatorship and the misdeeds of your joint owners. Do not rely on joint ownership as your plan—it’s simply too risky and unreliable.
Even if you already have a financial power of attorney, it can become “obsolete”. Many institutions don’t want to rely on stale, outdated documents. Depending on your circumstances, a stale, obsolete power of attorney may not be able to help you and your family with insurance contracts, retirement plans, banking and investment accounts, online personal accounts such as email, Facebook, Instagram and LinkedIn, and elder care and special needs planning. Furthermore, a financial power of attorney can also become obsolete due to the fact that the people you have named to fulfill the role of agents are unable to act due to age or death.