Who will manage your assets when you can't?

by Center for Personal Finance editors

SAN FRANCISCO (8/24/06)--With longer life spans and bigger nest eggs, we need to take steps to protect our assets. Become familiar with some basic tools so you can appoint trustworthy people to manage your assets when you can't (MarketWatch.com Aug. 4).

Why plan ahead? There are plenty of horror stories of people who weren't prepared--who became disabled, were in a serious accident, or were diagnosed with Alzheimer's disease--and who hadn't appointed anyone to make decisions on their behalf. Don't be one of them.

With a few basic tools, you can have greater peace of mind knowing you've specified how you want your affairs handled and your assets divided in case you can't.

Power of attorney. This is a legal instrument that you use to delegate authority to someone else to handle your property, financial, and other legal decisions. You're referred to as the principal, and your appointee is referred to as an agent or attorney-in-fact. The person you appoint doesn't have to be a lawyer. According to elder-law.lawyers.com, often-overlooked provisions include the power to handle tax matters and deal with the Internal Revenue Service, the power to handle retirement accounts and investments, a compensation clause specifying how much your agent should be paid and where the payment should come from, the power to make gifts, and the power to create and amend trusts for your benefit.

Limited (nondurable) power of attorney. This allows you to appoint an agent only for the matter at hand, such as the purchase of real estate at a specific address. This document also specifies the extent of the power, as well as the expiration date. If you require a stand-in at a house closing, make sure you've set up a limited power of attorney and that it's approved in advance by all parties involved.

Springing power of attorney. This doesn't kick in until you're disabled or incapacitated, or upon some other event you specify. Be careful--there must be a formal determination of your disability before the springing power of attorney can kick in and be accepted. Be prepared for a delay and perhaps even a court battle if your family disagrees about the degree of your disability.

Durable power of attorney. Use this to delegate broad authority over your personal financial affairs. It kicks in immediately. By law, the appointee could act independently, even while you're healthy, so appoint someone you're sure you can trust. It's effective until you revoke it, or upon your death.

All powers of attorney end upon death of the principal, so make sure you have an up-to-date will. For noncomplicated estates with less than $2 million in assets, consider writing your own will with software like WillMaker (about $50) at nolo.com (CNNMoney.com Dec. 13). For large or complicated estates, hire a local attorney with estate-planning expertise. Go to findlaw.com to locate one in your area.

For more information, read "Who'll Watch the Shop? FAQs About Trusts and Power of Attorney" and "Make a Will to Have the Last Word" in the Home & Family Finance Resource Center money savvy section.