Rumor: “Spouses have the automatic right to access the other spouse’s accounts, so my spouse and I don’t need a power of attorney.”
Reality: No automatic right exists for one spouse to access another spouse’s accounts under the law. A durable power of attorney creates that right. If a durable power of attorney doesn’t exist, then access will not be granted by the financial institution. If your spouse becomes incapacitated, a court will need to appoint a guardian.
Maggie and Rich are married, but they maintain separate bank accounts and credit cards. Rich became ill and his mental capacity is severely diminished. He is no longer able to manage his finances and pay his bills.
Unfortunately, the couple do not have durable power of attorneys that name each other, or any other trusted individuals, as “attorney-in-fact” or “agent.” That appointment would allow the named agent to quickly step in and act in Rich’s place for financial purposes.
A durable power of attorney is a legal document and an important part of an estate plan. It can be broad or narrow in scope. It takes effect immediately and terminates when the person who executed it, known as the “principal,” dies or revokes it. A durable power of attorney serves as a safety net of sorts since it is already in place should someone become incapacitated for any reason, including illness or injury.
Without a durable power or attorney, no one has the right to access Rich’s accounts and handle his financial affairs. Maggie or someone else, like an adult child, would need to ask the court to be appointed as Rich’s guardian to gain that access. This process takes additional time and money. Also, the court may not always decide to appoint the incapacitated person’s first choice and the incapacitated person no longer has a say in who is appointed.
A durable power of attorney can only be executed if the principal demonstrates the mental capacity needed to make this decision. In Rich’s case, it’s too late to create a durable power of attorney.
An alternative to the durable power of attorney is for accounts to be held jointly — but this carries some risks, especially if the joint account holder is not a spouse.
Whether or not the spouses are joint account holders, a durable power of attorney is still important for each of the spouses to have. In addition to ensuring their individual affairs are handled, it also addresses the situation should both spouses become incapacitated at the same time.
This is the fifth in our Rumor v. Reality estate planning series. Watch for additional, helpful estate planning information in the coming weeks! Also in this series: