Chances are good that you are going to live many years in retirement, but will they be healthy years? If illness or injury strikes, you want to know that there is someone on hand to manage your day-to-day finances and investments. Do you have a long-term financial management plan if illness or injury strikes? Your spouse may take over your everyday money concerns, but if he or she is also caring for you or going through similar health issues, handling the financial planning may be an unreasonable burden. Single people face similar questions: they may not want to burden friends, children or other relatives with their finances and health care.
Establish a long-term financial plan to accommodate the possibility that a spouse or friend might not be alive or healthy when he or she is needed.
Legal proceedings to assign you a caregiver and financial manager could be incredibly costly and potentially put your finances into the hands of someone you wouldn’t want managing your money. If you haven’t created your own long-term financial management plan, here are a few options to consider:
A durable power of attorney is a legal document in which you give someone the authority to act on your behalf in the circumstances that you designate. Although a regular power of attorney lapses in the event that you become mentally incompetent, a durable power remains in effect.
The authority that you grant to your “attorney-in-fact” can be as broad or as narrow as you wish. Duties may include:
- Paying bills
- Collecting debts
- Preparing tax returns
- Borrowing funds
- Purchasing insurance
- Funding a trust
- Disbursing annual gift-tax-free transfers to children and/or grandchildren
Be aware that some institutions require that the power be executed on their particular form, which is simple if you’re in good health, but potentially impossible if you’re incapacitated. Plan ahead and periodically update the document so you can maintain the authority of your durable power of attorney.
A revocable living trust can provide comprehensive protection for long-term financial and estate management, and can last as long as it is needed. You can create a living trust now, and change or cancel it any time if the need arises. Initially, the agreement lets you retain full control over all assets in the trust.
The trustee’s responsibilities can be limited to everyday investment chores and recordkeeping duties. Then, if you become incapacitated (or upon your request), the trustee will assume full management of your assets, acting as you have directed in the trust agreement. You may authorize your trustee to use trust income to employ household help, hire nurses, pay your monthly bills, and more.
It’s important to make your plans while you’re able to do so. Talk over these issues with those closest to you, as well as with your financial and legal advisor, to create a long-term money management plan that’s best for you.