Even if you’re set financially, if you’ve ever had that feeling like you’re forgetting something, you’re not alone. Being prepared is more than just the dollars and cents that make up your financial picture. There are other things you have to think through. Who would you want to manage your finances if you were unable to? Who would the money in your different accounts go to in the event of your death? How do you spot the signs that someone may be trying to con you out of your money? These are all issues we deal with, so let’s take a look at some of the common preparedness mistakes so that you can avoid them.
Not Having Power of Attorney
Even if you’re confidently managing your finances now, there may come a time when, either due to illness or accident, you may not be able to. When that happens, it’s important for you to have a trusted person who is able to take care of things on your behalf. But in order to do that, they have to have proper authorization.
A power of attorney is a legal document allowing an authorized person to operate on your behalf with regard to the management of finances. The broadest power you can give someone is a general power of attorney. It allows the authorized person to do anything you could do. Because the power is so broad, it is usually only reserved for spouses.
A limited power of attorney only gives specific, detailed powers. The power granted may be extremely narrow, only authorizing the agent to act in a specified manner. For example, if you purchase a home and can’t attend the closing because you are out of the country, you can give a limited power of attorney to someone else authorizing them to sign your name at the act of sale.
Both general and limited power of attorney are automatically revoked at the time of your death (this is often referred to as a durable power of attorney, with “durable” meaning that it continues even during incapacity or disability.) Another way that a power of attorney can be structured is as a springing power. In that case, the authorized person’s power to act “springs” into existence upon some defined event (i.e., at incapacity or deployment overseas) and ends when the event is over. It is commonly used by someone who is currently able to handle their own affairs but wants to plan for future contingencies. As with all forms of power of attorney, it is revocable.
Failing to Update Beneficiaries
Most financial products require you to name a beneficiary. When you set up your first bank account, you named a beneficiary (and usually contingent beneficiaries) in the event of your death. You might have done the same thing if you opened a brokerage account, and you certainly did if you bought life insurance. Often, that’s the last time that people pay attention to the beneficiaries that they’ve listed on those accounts.
Life changes (death, divorce, remarriage) may necessitate the changing of beneficiaries. If beneficiaries aren’t named (or if all the beneficiaries are deceased), the assets in certain accounts have to go through probate, which can be a lengthy and expensive process. And who determines how those assets are ultimately distributed? Not you. Instead, the laws of the state govern who receives the assets when a beneficiary is not named. It’s important to understand what type of accounts bypass probate and can pass to someone else regardless of what a will states.
Payable on death (POD) accounts are bank accounts (checking, savings, money market, CDs, U.S. savings bonds) that allow for the money remaining in the account to pass directly to the beneficiaries named by the account owner. Similarly, transfer on death (TOD) accounts (some examples include retirement accounts, brokerage accounts, stocks, and bonds) automatically transfer to the beneficiary when the owner dies. These accounts transfer by contract, and thus are not part of the probate estate. Other contracts, like life insurance or annuities, also avoid the probate process.
All of the accounts we just mentioned transfer according to the beneficiaries named on the account documents. When you name beneficiaries (as well as contingent beneficiaries), you ensure that they go to who you want and avoid going through probate. It’s good to periodically review your beneficiaries on those accounts to ensure that they are up to date. A good time to do that is whenever a major life change occurs.
In addition to life changes, asset appreciation may play a role in determining who you want to list as beneficiaries. Let’s look at an example. Assume that you have two children who you want to be equal heirs to your money. Let’s further assume that you only have a savings account and a brokerage account with stocks in it. When you initially set things up, you might name one child as the sole beneficiary of your savings account and the other child as the sole beneficiary of your brokerage account, because they both have the same value. But over time, you may find that your brokerage account has increased in value while the amount in your savings account has not changed. If you wanted them to receive the same amount, you might consider changing the beneficiary designations so that they are co-beneficiaries of both accounts.
Falling for Scams
Financial scams targeting older adults are costly and widespread. According to the Federal Bureau of Investigation, in 2021 there were 92,371 older victims of fraud resulting in $1.7 billion in losses. This was a 74% increase in losses compared to 2020. The United States Senate Special Committee on Aging published a study in 2021. That study said that the top five scams reported to their fraud hotline from 2015-2020 were government impersonation scams (i.e. pretending to be the IRS), sweepstakes scams (Congratulations! You’ve won. You just need to send a small amount of money to secure your prize…), illegal robocalls and unsolicited phone calls, computer tech scams (your computer has a virus, and we will help take care of it), and grandparent scams (Grandpa, I’m in trouble. Don’t tell my parents. I need money to…).
Nearly every scam is designed to trick you into sending money or providing your personal information. The first way scammers do this is to get you to believe something good will happen to you (like winning a prize) if you do as they say. The other is by scaring you into believing something terrible has or will happen to you (like your home will be foreclosed on or you will be arrested) if you don’t do as they say.
There are a number of tricks that con artists will use to convince you to give them money and personal information. Putting you on the spot and forcing you to make decisions fast is the number one method. Sometimes they will threaten you (as in the case of posing as an IRS agent and threatening prison if you don’t send them money), and almost always they use fake caller IDs to disguise their real numbers. A con artist will always pressure you not to consult with friends and family, because they know that once you have time to think things over and talk about it with others, their con will be exposed. In most cases, they will urge you to hand over personal information like your Social Security Number or account numbers. Sometimes it will be for the promise of free or reduced cost medical devices.
Remember that no legitimate government agency, business, or organization will make unsolicited contact with you and then ask you to provide your personal information. Nor will any legitimate prize giveaway, government grant, lottery or sweepstakes require you to pay anything up front to claim your winnings. A legitimate organization will agree to send you more information without forcing you to make a commitment. A scam will insist that you have to make a decision right then.
As you get older, it can be hard to keep track of everything you’re supposed to stay on top of. By working with a professional financial adviser, they can help keep track of your financial situation and give you clear, objective advice to ensure that your financial goals are met. Find someone that you’re comfortable with and let them help guide you on your financial journey and avoid some of the common pitfalls out there.
About Chase Investment Counsel
Chase Investment Counsel is a family and employee-owned boutique wealth management firm that offers personalized investment services. Our clients include career professionals, those nearing or in retirement, and families experiencing financial transitions such as generational wealth transfer, widowhood, divorce, or sale of a business. Chase’s active, disciplined investment management team is focused on selecting individual stocks and bonds targeted to each investor’s specific financial goals and risk tolerance. Established in 1957 in Charlottesville, VA, Chase Investment Counsel manages more than $300 million in assets.