It is commonly believed that married couples have automatic rights to handle one another’s financial affairs. That is generally true with regard to joint bank accounts and joint brokerage accounts. But when a spouse becomes incapacitated due to illness or accident, the other spouse may discover a surprising and inconvenient fact: Spousal rights are not as extensive as they thought. That is why each spouse should have a Durable Power of Attorney (DPOA) naming the other as agent.
Without this document, you may be prevented from acting on behalf of your incapacitated husband/wife with regard to assets your spouse owns solely, or even with regard to assets you own jointly. Should this happen, you may have no choice but to petition the court for legal guardianship over your spouse, a cumbersome and expensive process. This is why our attorneys recommend to our married clients that each spouse create a Durable Power of Attorney naming the other as his/her “attorney in fact” (agent). We also recommend that contingent agents are named, in the event the spouse cannot act.
Some Situations Where Spouse Would Need A DPOA to Act
Below are a sampling of circumstances in which someone may face obstacles managing his/her spouse’s financial affairs if the spouse is incapacitated and unable to sign off on the transaction:
- Retirement Accounts
Even if you are the beneficiary of your spouse’s pension or other qualified plan such as an IRA or 401K, you do not automatically have the authority to manage the account. You cannot make withdrawals, change beneficiaries, change institutions, change investments, or make any other changes to the account. In fact, in the absence of a valid Durable Power of Attorney naming you as the account holder’s agent, the institution holding the account may not even talk with you or release any information to you about the account.
- Co-owned Real Estate
Most married couples jointly own their homes. Even so, a spouse does not have automatic authority to sign his/her spouse’s name on a deed, mortgage, or sales contract. You would need a validly executed Durable Power of Attorney to do that.
- Life Insurance
You may be a beneficiary, or the insured on a policy that your spouse owns. But that does not give you authority to gather information about the policy, cash in the policy, borrow against the policy, or make changes to the policy, notwithstanding your status as the beneficiary or the insured. You would need a Durable Power of Attorney from your spouse to accomplish these tasks.
- Medicaid Planning
To help gain Medicaid benefits if your spouse is in a nursing home, a variety of steps must be taken. Without a Durable Power of Attorney giving you certain rights, you may not be able to engage in Medicaid planning for your spouse. For example, you would need the authority to enter into contracts, make gifts, and change ownership of assets on behalf of your spouse.
A Living Trust Does Not Solve the Problem
If you and your spouse have a joint Living Trust, each spouse would be the other’s successor trustee in the event the other is incapacitated. However, there are limitations to this arrangement. The trust applies only to those assets placed in it, and not all assets properly belong in a trust. For example, if Mr. and Mrs. Jones have a joint trust, Mr. Jones’ 401K should not be titled in the name of the trust. Mr. Jones would have to have created a Durable Power of Attorney giving his spouse the authority to manage that non-trust asset.
Empowering Your Spouse with a Durable Power of Attorney
The Durable Power of Attorney should be created sooner rather than later. Once your spouse becomes incapacitated, whether due to accident or illness, he/she can no longer execute the document. Then, guardianship may be necessary if a situation arises in which you must act for him/her. You are well-advised to consult an experienced estate planning attorney and not rely on boilerplate forms for your DPOA, since the terminology and the powers granted in the document must be precise and must anticipate every possible scenario in which you would need certain authorities.
Make Sure Your Financial Institution Will Honor Your DPOA
The law allows financial institutions to review the Durable Power of Attorney to determine if it is in compliance with the law and with the institution’s own in-house financial agreement form. (Although the financial agreement form is given to a patron when an account is opened, it often goes unread.)
Securing a financial institution’s approval for your Durable Power of Attorney takes time. We have seen instances when the institution finally decides it will not honor the document. Therefore, we urge you to submit your Durable Power of Attorney to your financial institution for review before you need to use it. Request that your DPOA be reviewed, and ask for written acknowledgement that it will be honored, so there can be no denial later. Once it is approved, we have even advised clients to do a “test run” by having their spouse (or whomever the designated agent is) take the DPOA to the institution and take some minor action, such as making a small withdrawal or a making a minor change to investments.
Contact The Karp Law Firm attorneys to discuss establishing your and your spouse’s Durable Power of Attorney. Reach us at (561) 625-1100.