Prepare for a financial interruption by separating trusted contacts, legal authority and account information. Test whether your chosen helper could act.
June 3, 2024 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of June 3, 2024.
If you were temporarily unable to manage your finances, someone might know that you need help without having permission to provide it. A daughter could find the electric bill but be unable to speak with the bank. A friend could notice unusual account activity but have no authority to pay an essential expense.
Plan separately for information, communication and legal authority. Those roles can overlap, but they are not interchangeable. Choosing who could help is only the beginning; the person also needs an appropriate way to act and enough information to understand the job.
Distinguish the roles before choosing people
A financial power of attorney can authorize an agent to make specified financial decisions. Its scope, when it takes effect and whether it remains effective during incapacity depend on the document and applicable law. A durable arrangement is intended to remain effective despite incapacity, subject to its terms.[1]
A trusted contact on a brokerage account serves a different purpose. The firm may contact that person in specified circumstances, but the designation alone does not authorize trades or withdrawals. A trusted contact can be useful without becoming the person who manages the account.[1]
A beneficiary designation generally concerns what happens at death. It should not be treated as permission to manage the owner's finances during life. Similarly, knowing a password does not necessarily create lawful authority or satisfy an institution's procedures. Coordinate the documents and access methods rather than using informal access as the plan.
Healthcare decision-making can require separate documents under the applicable state law. Someone who is well suited to discuss medical care may not be the best person to handle investments or taxes. You can consider different people for different jobs, with a way for them to communicate when decisions affect one another.
Walk through a realistic interruption
Imagine a hypothetical retired homeowner, Helen, recovering from an illness that leaves her unable to manage bills for several weeks. Her regular income is deposited automatically, and her housing payment is on autopay. But an annual insurance premium and a home repair require attention during the same period.
Helen's sister, Ruth, knows the location of a folder containing account statements and provider contacts. Ruth is also listed as a trusted contact at the brokerage. Those facts help her communicate, but neither automatically gives her authority to withdraw money for the insurance payment.
If Helen has a properly prepared financial power of attorney naming Ruth, the next questions concern its scope, effectiveness and the institution's process for recognizing it. If she does not, Ruth may need legal guidance about the available options. The family should not assume that presenting identification or explaining the relationship will resolve the issue. This is why naming a trusted contact is useful but cannot substitute for the authority Ruth may need.
Before an interruption occurs, Helen can ask the institution how it handles powers of attorney and review the process with her attorney and Ruth. She can also create a short list of nonautomatic bills, where the documents are kept and whom to contact. That gives Ruth a practical starting point without requiring Helen to hand over unrestricted control today.
The useful test is straightforward: could the chosen person identify the next essential bill, establish authority where required and find the available funds? If any step depends on an assumption, the plan needs more work. A signed document that no one can locate may be no more useful in the moment than an unsigned draft.
Choose capacity and reliability, not just closeness
Discuss the role before naming someone. Ask whether the person is willing, has time and understands the responsibility. Geographic distance may be manageable for some tasks and difficult for others. A dependable sibling who lives far away might manage records well while a local professional handles another function.
Consider a backup and how a change in circumstances would be handled. The first person may become ill, move or no longer be willing to serve. Review the documents after major family changes and ask the attorney how replacements or successors should be identified.
If there is no suitable family member or friend, discuss professional options with an estate-planning attorney or appropriate local resource. Depending on the need and available services, a professional fiduciary or trust company may be an option. Understand the fees, minimum requirements, authority and oversight before choosing one; availability varies.
Professional assistance is not reserved for people without family. It can also help when relatives lack time, disagree or would prefer not to handle money. The trade-off is cost and the work of selecting and monitoring a suitable arrangement. The goal is reliable help that fits your circumstances, not a particular family structure.
Make access practical while protecting privacy
Keep a current inventory of accounts, recurring obligations, insurance and professional contacts in a secure place. Tell the appropriate person how to locate it when needed. Avoid putting passwords and sensitive account details into a broadly shared email or an unprotected document.
You can begin with limited information and a discussion of responsibilities. The person helping does not necessarily need to know every balance today to understand what the role involves. Your attorney and financial institutions can help distinguish the access required now from authority intended for a later situation.
Choose one institution and one essential bill to test this week. Confirm who could act, which document would be needed, where that document is kept and how long the institution expects its review to take. Helen's example becomes less uncertain when those answers are available before the interruption, while she can still explain her wishes and make the choices herself.
Related reading
- An Estate Review for People Who Do Not Expect Estate Tax
- Estate Documents Are Only Useful if People Can Find Them
Have more questions about financial powers of attorney and planning for help? Complete the Financial Forte questionnaire to get started on connecting with an advisor who can help answer your questions and explore next steps.
The contact invitation is current; it does not imply this contact path existed on the historical reference date.
Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
