Conducting a POA Checkup: The Advisor’s Role

What do cars, doctors’ offices, and hair salons have in common? Each one reminds you when it’s time for a checkup. Powers of attorney (POAs), on the other hand, do not have dashboard lights, nor do they send texts. Conducting a POA checkup is generally up to the advisor, as clients don’t usually think to do so on their own.

A POA may be a client’s most important legal document. It allows a client (the principal) to authorize another individual (the attorney-in-fact) to manage his or her financial and business matters. If a POA is current and the clients haven’t experienced significant events in the past 12 months, then revisions probably aren’t necessary, but as a client’s life changes, the POA should, too. Let’s consider Susan, a hypothetical client.

Susan’s husband died unexpectedly in March. She’s only 58 years old, and her job allows her to work remotely from anywhere in the U.S. Susan lives in Wisconsin but wants to spend six months of the year in Arizona. Her only child, Lisa, was devastated by the loss of her father, and Susan is reluctant to talk to Lisa about her own health. Susan and her husband signed their POAs 10 years ago and named each other as their attorney-in-fact. At that time, Lisa was 18, and Susan and her husband didn’t name a successor attorney-in-fact. Now that Lisa is an independent adult, Susan wants Lisa to fill that role, but there are details she needs to review before making updates.

Successor attorney-in-fact. The need for one update is obvious: Since Susan’s husband died and no successor was named, she no longer has an attorney-in-fact. Alternatively, if Susan had named Lisa to be her successor attorney-in-fact, Susan should confirm whether state law requires Lisa to sign an acknowledgment before she can act as the attorney-in-fact.

Validity in other states. Susan’s decision to spend part of the year in Arizona creates an often overlooked complication: whether a POA executed in one state would be recognized in another. Most state laws recognize a valid out-of-state POA, but a caveat notes in a FINRA Investor Alert, “Power of Attorney and Your Investments—10 Tips” that Susan may find that a bank in Arizona won’t accept her POA, especially one executed a decade ago.

Health and long-term care decisions. Her husband’s sudden death has caused Susan to reflect on her own health. What if she has a car accident in Arizona and, because of her injuries, cannot manage her finances for an extended period? Also, Susan’s father had early onset dementia. What if she does too?

Her concerns about health care should prompt Susan to reread her POA to see if it’s up to date with her current wishes and more recent regulatory changes. Clients usually understand that an attorney-in-fact will act on their behalf if they become incapacitated, but they may not realize how asset management duties relate to health care matters. For example, under the Uniform Power of Attorney Act (UPOAA) Section 114(b)(5), an attorney-in-fact’s duties include cooperation “with a person that has authority to make health care decisions for the principal to carry out the principal’s reasonable expectations.” Also, under the UPOAA Section 213(a)(5), the attorney-in-fact duties include payment “for necessary health care and custodial care.”

A POA should also authorize the attorney-in-fact’s access to protected health information covered by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). This federal law defines such information as any medical record created during diagnosis or treatment that can be used to identify an individual. The UPOAA’s model language in Section 213(a)(6) illustrates why providing an attorney-in-fact with access to protected health information is important: An attorney-in-fact will make “decisions related to the past, present, or future payment for the provision of health care consented to by the principal or anyone authorized under [state law] to consent on behalf of the principal.”

The need for an attorney. Now suppose that after Susan reads her POA, she discovers that it doesn’t refer to HIPAA, and the attorney-in-fact’s duties don’t include health care matters. Susan will need to meet with her attorney. There are several ways a trusted financial advisor can help Susan prepare for this meeting.  

To start, the advisor should recommend that Susan talk to Lisa about how she wants to coordinate her POA with her long-term care plans, including where she wants to live when she retires and what type of care she wants. Susan and Lisa could also discuss how long Susan wants to stay in her own home. If Susan wants to remain in her home as long as possible, her POA should authorize Lisa to hire and pay home health aides. In addition, they need to decide what happens if Susan can no longer stay in her home and whether she will relocate when Lisa lives in a different city. If Susan has long-term care insurance, does Lisa know what company issued the policy, what the premiums are, and what benefits the policy provides?

Trusted contact designations. Susan and her advisor should also discuss whether to name her attorney-in-fact as her trusted contact person. Recent amendments to FINRA Rule 4512 created the trusted contact as a guard against financial exploitation. Susan’s attorney may not be aware that a trusted contact can be named for financial accounts. Also, although the change primarily affects new accounts, FINRA Rule 4512 directs advisors to ask existing clients whom to contact if they suspect financial exploitation.

Knowing the terminology. It’s important for Susan to understand the following terms and the different types of POAs available:

• A durable POA remains effective if the client becomes disabled or incapacitated. If it isn’t durable, the document’s primary purpose will be nullified.
• A general POA is effective immediately.
• A springing POA is best if a client doesn’t want to cede control of her affairs unless necessary.
• Legal capacity means the ability to form and understand decisions and their consequences.

Conducting a POA checkup may not seem like a role for a financial advisor. If a client’s life changes cause a POA to become irrelevant, however, your clients’ plans—and your ability to facilitate their goals—may be impeded. With that in mind, it’s important to regularly ensure that your clients’ POAs always match the pace and path of their lives.

Commonwealth Financial Network^® does not provide legal or tax advice.

Is conducting a POA checkup with your clients something you practice regularly? How often do you prefer to go over their choices with them? Please share below—we’d love to hear your thoughts!