Photo: Nicolay Eskin
A power of attorney is an important part of estate planning.
Reader feedback prompted this follow-up to last week’s column.
The accused me of giving inaccurate information and poor advice. No hard feelings to the reader, I know he meant well, and thanks for clearly articulating his concerns, which I will address.
Those following this column might remember the one published March 31, 2024, about conflicts of interest. It addressed the elephant in the room when considering the advice of a lawyer columnist.
I am not just a columnist, I am also a lawyer running a law firm. I could choose to use my column in a self-interested way, persuading readers that particular legal services are necessary even if they are not. I genuinely intend to provide helpful legal opinions and information.
I get a kick out of helping people, which I believe is a universal human trait. I do my best to be vigilant and not to allow self-interest to get in the way. Maybe I was too vigilant last week.
I provided a cost-benefit analysis that pointed against a young person incurring the expense of a power of attorney. An easy sales pitch for a power of attorney is that it’s a choice between paying a small amount now or leaving it to your loved ones to pay a whole lot more later.
If you lose your cognitive capacity without having appointed someone to look after your financial affairs, your loved ones will need to go through an expensive court process to have a committee appointed. Until that happens, your bank and investment accounts will be inaccessible, as well as the title to your home.
I ran the numbers and concluded a financial analysis favours a young person waiting until later in life (their 50s) when they’re going to appoint new attorneys anyway (likely their children). The odds of losing your cognitive capacity before your 50s are very, very low. But, as my reader pointed out, it does happen—and not just by age-related dementia. A head injury, stroke or other extreme medical event can occur at any time, leaving you with a prolonged or permanent loss of cognitive capacity.
If you’ve not made a power of attorney appointing someone to look after your financial affairs, your loved ones will have to come up with the $10,000 to $15,000 to have a committee appointed in the context of an incredibly high stress situation and while facing the loss of your income stream.
Maybe the cost of a power of attorney should be looked at like the cost of insurance.
Insurance never passes a financial cost-benefit analysis. The insurance company makes a profit which gets worked into the premiums. But we still pony up premiums for house, car, life, disability and health insurance. The benefit side of the ledger should go beyond a strictly financial analysis.
I briefly pointed out the convenience aspect of a power of attorney, noting if you develop mobility issues, your appointed attorney can attend bank and legal appointments for you.
The reader asserted it can go beyond convenience and become a necessity issue if you’re out of the country when time sensitive documents must be signed, such as real estate conveyancing documents. Planning ahead should eliminate that contingency, but I have his point.
I had also briefly shared a fraud protection benefit which he asked me to explain.
Fraud artists are very good at what they do. I’ve recently been consulted by an incredibly intelligent person who was duped out of tens of thousands of dollars believing she was helping investigate bad actors in her bank. She and her adult children met with her bank representatives to figure out how the fraud was allowed to happen and how to help prevent it in the future.
The fraud artists gave her plausible explanations to pass on to bank representatives so they wouldn’t suspect foul play when investments were cashed in. There were no red flags from the bank’s perspective.
The bank suggested she make a power of attorney, appointing her children, to help protect against future fraud. Armed with the power of attorney, the children could monitor the accounts.
Had a power of attorney been in place, the children would have immediately known something was up and been able to step in to stop the fraud in its tracks.
I am prepared to agree with the the reader and another who also who also reached out who said I undersold the power of attorney. One concluded his comments saying the cost of a power of attorney may be the best money you can spend. The other suggested any person who cares about their family should get a power of attorney.
So, I stand corrected.
I will conclude with a warning that not all powers of attorney are the same. They can be as simple as a one-page form or be quite extensive. Next week I will explain why you might want more than the simple one-page form.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
