Here are five steps you should take now so that you (and your spouse and other loved ones) will be protected.
Inventory. Compile an inventory of all your assets, accounts, financial contracts and policies.
There are several benefits to this. First, it will be much easier for you to manage your finances when you have everything organized. Second, you won’t lose track of some assets.
More importantly, there will come a time when someone else will have to take over the management or liquidation of these items. It might be the executor of your estate, your spouse, or the holder of your financial power of attorney.
You might even decide in a few years that you need help, or a co-manager, for your affairs.
Having a complete, up-to-date inventory of your resources makes the change easier and more effective.
Finally, the inventory can make it harder for assets to “disappear.” One of the most common ways people take money from older people is to simply liquidate an account over time. This can be done by abusing a power of attorney or by having the older person whose cognitive ability is diminished sign paperwork without realizing what it is. When you have an inventory, it’s easier for someone who’s looking out for you to determine if assets are missing.
Simplify. I’ve always been a big believer in simplifying your financial affairs.
Most people have too many accounts at different firms, and too many mutual funds that largely duplicate each other. Years ago, I learned that most people have too many accounts at different firms, and too many mutual funds that largely duplicate each other. In general, there’s too much to keep track of, aggregate, and organize. The results are procrastination and confusion.
It’s better to have as many of your assets as possible at one or two firms. You’re unlikely to lose track of things, and are more likely to make needed changes when there’s only one or two firms to deal with.
Anyone who later helps you manage the affairs, or takes them over, will have an easier time making decisions when your assets are consolidated and simplified.
The combination of having an inventory and simplifying your finances is, if it becomes necessary, it will be easier for authorities to determine and prove if you’ve been scammed or abused.
Identify trusted contacts. We all need one or more persons we can trust who know enough about us and our affairs that they can help with decisions. It might be a spouse, relative, friend, or a professional advisor. This is a person you can talk to before making important financial decisions. The person can help ensure you’ve considered all the angles and that it’s the best for you. Ideally, you name someone who has some financial expertise, but it isn’t essential. All you need are one or more people with intelligence, experience and common sense who will help you consider all the angles.
A more important role is for that person to be the trusted contact when financial firms have concerns. In recent years, many financial firms determined they should have a role in protecting clients from fraud and financial abuse and spotting those who might have diminished capacity. Federal law also changed so that firms won’t be liable if they have a reasonable basis for taking actions to protect you, such as freezing your account or not immediately making transactions.
Financial services firms now routinely ask clients to identify a trusted contact and are required to make best efforts to have clients identify such contacts. This is a person the firm can contact if it has suspicions about transactions related to your account. They also can contact this person if they suspect there might be financial abuse or fraud. Many firms now are on the lookout for unusual transactions, or signs that you have new difficulty understanding matters.
Select one or more agents. Your estate plan should include a financial power of attorney (POA). The POA names one or more people as agents who will manage your financial affairs when you aren’t able to.
Be sure you have a financial POA and give careful thought to the agent or agents. You need people who are both trustworthy and sophisticated enough to handle your affairs well.
Some advisors recommend selecting more than one agent primarily to make fraud and abuse more difficult, requiring collusion between the agents for it to happen.
Be deliberate. Don’t make financial decisions in a hurry. Cognitive ability generally declines after age 35 or so, but often it is more than offset by accumulated knowledge and wisdom. Don’t let anyone rush you into a decision, and be suspicious of anyone who tries to force a fast decision.
Make financial decisions after thorough evaluation and deliberation. Seek advice and help from others. You should have that friend, relative, or advisor who can listen to your reasons for considering an action, be able to ask questions, and make observations.