Confronting the limits of our own mortality… it is painful – Thomas Mierswa, Executive Director at Morgan Stanley
The aging of America is creating a societal issue not present in large numbers of prior generations and that problem is diminished mental capacity making it impossible to manage financial affairs effectively.
Financial advisors have significant limitations when attempting to advise clients exhibiting diminished mental capacity. The legal and compliance departments within many investment advisory firms now provide increased oversight on advisors working with older clients.
You can act now to address this inevitable consequence of growing older.
Rose Watson, JD, MSEL, is a manager, advanced planning at Commonwealth Financial Network®, member FINRA/SIPC, an independent broker/dealer–RIA and she provides the following guidance:
Ensure that you have a power of attorney (POA). This document authorizes an agent to act on your behalf (the principal), with specific authority for specific accounts. Powers of attorney come in two forms—one becomes effective immediately; the other, a “springing power,” takes effect after a particular event, such as a determination of incapacity. The POA dictates who will make the determination of incapacity (most likely a physician) and will specify the actions and assets over which the agent has authority.
Ensure that the POA is durable. Keep in mind that a POA must be “durable” to remain effective during any period of incapacity. A durable POA will often be titled as such, but it should clearly state that it remains intact throughout incapacity. Remember, a POA is only effective during the principal’s life.
Establish a trust, if the situation warrants one (after discussing with legal counsel). A revocable trust is a streamlined way to administer assets during incapacity and upon the client’s death, without the need for probate. It’s important to recognize, however, that a trustee has authority to manage the trust assets only. For assets held outside of the trust, a POA may be necessary.
Articulate the line of succession. Be sure to review the client’s line of succession. For example, the client may designate his son and then his daughter, in that order, as successor trustees in the event that he becomes incapacitated or upon his death.
And apart from financial concerns, healthcare concerns should be considered as well.