The Transcript of the Podcast Episode

Tim Maurer:

Hello, I’m Tim Maurer, back with another episode of Ask Buckingham, a video podcast designed to bring clarity in the midst of confusion by connecting your great personal finance questions with straightforward answers from industry thought leaders. Today’s question will be answered by Cheri Dorsey, an estates and trust attorney at the firm she co-founded, Sessa and Dorsey. And Cheri of the three most important documents in estate planning, a will, a financial power of attorney and a medical power of attorney, one of these least understood is the financial power of attorney. What exactly does this document do?

Cheri Dorsey:

A financial power of attorney document is a document wherein you can name someone as your agent, someone who can act on your behalf. And the financial power of attorney document, typically, will give that agent all the powers for all of your financial assets. So, that would include real estate, that includes bank accounts, that could include retirement assets. So you’re appointing someone to be your agent.

Cheri Dorsey:

Now, there are different kinds of powers of attorney documents. The one that we typically recommend would be what’s called a durable power of attorney. The benefit of a durable power of attorney document is that you sign the document now and you give powers to your agent now, and then even if you become disabled, that agent can continue to act. And so, the benefit of that of course, is you’re in a car accident. You’re going to be in the hospital for a little while. There’s someone who has the power and capacity to take care of your financial affairs for that period of time.

Tim Maurer:

Okay. Well, can you give me a simple example of when this might come into play? You just gave one of the durable piece, if someone was disabled and unable to make decisions. What’s another common example that you find where a financial power of attorney would be helpful?

Cheri Dorsey:

Another example that I think of, and maybe not as common now that people aren’t traveling as much, but for instance, a number of my clients may have husband or wife who travels a lot for business. And say, for instance, they have a house and they want to sell the house. So they have a car that they want to sell and both spouses signatures are required. Well, under the power of attorney document, if you had named your spouse as your agent, your spouse could sign for you, even though you may be very well and of sound mind and not physically incapacitated, but just unavailable. So if you’re not available for that closing meeting, or you’re not available to sign over that vehicle title, if you have signed a power of attorney document, your spouse can sign on your behalf. So it’s convenient as well.

Tim Maurer:

Sure. Yeah. So in the case of a disability, you’re not able to do it, but just for convenience sake, if you’re unavailable, you could utilize this document. But it sounds to me like if this is properly written, this a pretty powerful document. I mean, the person who has this power could effectively wipe you out financially, couldn’t they?

Cheri Dorsey:

That is true. And so, I do oftentimes have that question from clients. Hopefully typically, if they’re naming their spouse first, they don’t express as many concerns. But I will say in situations where clients are unmarried or they’re naming children, they’re widowed so they’re naming their children as their financial agent, sometimes brings about some concern. Ultimately, once I explain to them that the agent still has a fiduciary responsibility, so they legally are required to act in the best interest of the principal. So they are required to do what they think would be in the best interest of say their parent, for instance. And if they do not, then the parent or a representative party for the parent could actually sue the agent for breaching their fiduciary responsibilities.

Tim Maurer:

Yeah. And then we could have a made for TV special to follow up with that. Cheri, are there any decisions that people should make prior to entering in to creating these documents? What would you recommend to somebody who’s thinking about having a financial power of attorney written?

Cheri Dorsey:

I mean, the main issue is who do you feel most comfortable with? Who would you trust to really carry out your wishes with regard to your finances? And sometimes that takes some thinking, but once you’ve reached that decision, other than that, the document is pretty straight forward. A lot of states actually have a statutory form. And so beyond that initial question, it’s a pretty standard document.

Tim Maurer:

It’s interesting because these discussions begin with someone conceiving just of a document that they’re writing, a box that they’re checking, but they have a tendency to lead to some really important, sometimes challenging, but profound discussions, don’t they?

Cheri Dorsey:

Absolutely. That’s what makes my job so interesting. There’s a lot of psychology to what we do and a lot of deeper conversations and yes, it’s never as simple as it first looks

Tim Maurer:

Never simple, indeed. Thank you, Cheri. And thank you for tuning into this episode of Ask Buckingham. If you have a question that you’d like to see us address, you can do so by navigating to the website, askbuckingham.com or by emailing your question to question@askbuckingham.com or just click in the upper corner of the screen. It’ll take you directly to the website where you can ask your question. Remember that there are no dumb questions, but unfortunately there are plenty of dumb answers out there. Our hope is that in giving you straight answers to your questions, it will bring a sense of calm and allow you to apply what you’ve learned in pursuit of good decision making. So please, follow us. And by all means, ask Buckingham.