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GETTING PERSONAL: Market Drop And Estate Gaps Create Havoc

By Victoria E. Knight

(c) 2009 Dow Jones & Company, Inc.

NEW YORK (Dow Jones)--Plunging markets and poor planning are a combination that can wreak special havoc when an investor becomes infirm.

Karl Frank, president of A & I Financial Services, LLC, in Englewood, Col., cites one example: An elderly woman whose relatives watched in horror as she lost half of her $6 million in savings, which she had almost entirely in stocks. She had become incapacitated and they lacked power of attorney to move her investments - and the person who had it had died.

"It's really important for clients to have a durable power of attorney in place," says Frank, who is now in charge of rebuilding her wealth.

Having someone empowered to pay bills, manage accounts and oversee investment decisions isn't just a concern for the elderly or sick. "A stroke can occur suddenly or you could be involved in an auto accident. Every adult needs to have medical and financial powers of attorney in place," says Dr. Cecil Wilson, a member of the American Medical Association's board of trustees, who practices internal medicine in Winter Park, Florida.

While drawing up a power of attorney is a task for an attorney, financial advisers should raise the issue and, if necessary, connect clients with a reputable lawyer. Ronald L. Myers, a certified financial planner with Associated Investor Services, Inc, in Fort Lauderdale, Florida, says he tackles the topic early on while talking to clients about their financial and life goals.

"Clients can be fixated on assets, income and taxes, but estate planning and insurance issues are equally as important," he says.

Frank's approach involves using a family financial album, which includes a checklist of all the important legal documents, including powers of attorney, which clients need.

Clients can use the album themselves or pass it on as a gift it to another family member, such as a parent.

The thorniest question is who will act as power of attorney. "About 75% of the time, clients know who they want to pick. If they don't, it's either because they don't have anyone close to them that they trust or it's out of fear of offending other family members," says Myers.

Advisers can open up the lines of communication and work through the issues ahead of a meeting with a lawyer.

Typically, married couples give power of attorney to their spouse. It's important to have a back-up, though, such as an adult child. Individuals need to be trustworthy and able to perform the required tasks.

"I would rather a client didn't name anyone if they don't trust the person 100%," says Ronald Fatoullah, a certified elder-law attorney, who practices in the New York Metropolitan area.

An option is to name two people, say a child and a trusted professional, such as an accountant, who must make decisions jointly. Another solution is to use a trust with a professional trustee.

Alternatively, a court can appoint a conservator or guardian and oversee their activities (this can take time, though), lawyers say.

A power of attorney can be "current" (technically in effect from the day it is signed) or "springing," meaning it only becomes effective when the subject is incapacitated as defined in the document and confirmed by a physician, says Harry S. Margolis, an attorney in Boston and founder of ElderLawAnswers.com.

Lawyers give different advice on who should have originals of the document. Some say the grantor, every individual granted the power (agents) and the lawyer involved should retain originals. Others say only the lawyer and the grantor need originals as long as the agent is informed of their role and whom to contact. The documents need to be kept in safe place.

It's also wise for the grantor to talk to the financial institutions, banks and brokerages, where he or she holds accounts, about their policies. If they have any issues with the document or special requirements, such as in-house forms that need to be filled out, it's important to know in advance to avoid delays that can prove costly in a crisis.

(Victoria E. Knight is a Getting Personal columnist who writes about the financial implications of health-care issues. She can be reached at 201-938-2438 or by email at victoria.knight@dowjones.com.)

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