How will they access my bank and brokerage accounts?

When you die, or if you are incapacitated, your loved ones will need to access your financial accounts. In the case of your incapacitation, someone will manage your finances, including paying bills, depositing any checks, managing necessary financial transactions (e.g., purchases, deposits, sales, transfers), and preparing your tax returns. When you die, someone will wrap up your financial affairs—the tasks described above, preparing any necessary estate tax or inheritance returns, and then distributing your estate to heirs.

In your estate planning documents, you name those who will handle these tasks on your behalf. So named, your loved ones will have necessary authority to manage your finances and appropriate access to your bank and brokerage accounts.

Upon Incapacitation

If you are incapacitated, the agent (or alternate) that you have named in your Durable Power of Attorney for Finances (DPAF) will have the authority and access that you have specifically granted. That is, for each account or asset identified in your DPAF, you will grant (or disallow) specific power to your agent. For example:

• If you wish to provide your agent with authority to deposit any payroll or disability checks and write checks on a specific checking account, you can do so.
• If you wish to restrict your agent from accessing one of your safe deposit boxes, you can so specify in your DPAF.

Preparing a DPAF is relatively simple, yet the authority and access granted can be as broad and effective as you feel appropriate. Further, a DPAF is typically preferable to alternative methods for providing appropriate authority and access. Here are some of the drawbacks of common alternatives:

• Joint Accounts. Adding a loved one as an owner on your accounts is easy—but the joint account provides both access and ownership. You may not truly want to give (“gift”) the account value to the new joint owner. Further, the new account owner can now manage the joint account, but will not have authority to handle other financial transactions or other accounts.
• Living Trust. If you have made a Living Trust and then become incapacitated, the successor trustee who you named in your trust has authority to manage trust assets on your behalf. However, her authority is limited to trust assets—and you may have financial accounts (and other assets) that have not been transferred to your trust. Again, as with joint accounts, your loved one’s authority is limited (in this case, to trust assets alone).

To handle transactions on your behalf, your agent under the DPAF will provide necessary proof—a copy of the DPAF and, if the document becomes effective once you’re incapacitated, written statements from physicians that attest to your incapacitation. Then your agent is free to conduct your financial business according to the powers you have granted.

Upon Death

The authority granted by your DPAF ceases when you die. Now, the authority granted by your Will (and Living Trust, if you have made) is invoked. The executor of your Will (and successor trustee on your Living Trust) will be able to access your accounts and transact business on behalf of your estate. To do so, the executor will generally provide proof of your death (i.e., a certified copy of the death certificate) and proof of the executor’s power (i.e., a copy of your Will so naming the executor).

With these proofs tendered and accepted, the executor will be able to handle transactions related to your estate, both ongoing management as well as final account distributions and closings.

The ease and effectiveness of a Durable Power of Attorney for Finances and of a Will provide compelling argument for your creating these simple documents—both for your present peace of mind as well as to ease the eventual difficult burden on your loved ones.

Melanie Cullen is the author of Get It Together: Organize Your Records So Your Family Won’t Have To (Nolo), a workbook/CD-ROM for preparing and organizing your important records—for yourself and for your loved ones. She is a management consultant with TerraSys Consulting, Inc. and serves on the Projects@Work editorial board. She holds an MBA from the Graduate School of Business at Stanford University.

Image: Flickr Creative Commons / PT Money