Question:

I’m single, age 71, with no one able or capable to serve as my agent under a durable power of attorney. My concern is what happens if I become mentally incapacitated. I have investments at Vanguard with beneficiary noted (charity). I can do that at my bank for those accounts. I will talk with an elder care attorney and set up a will to cover my my house and a few other things.

That takes care of what happens to my property upon my death, but if I become incapacitated, do I need to now set up a revocable trust with that expense and complexity to manage all my finances? It seems I need a professional (attorney, bank, trust company) to manage that and another third party to check payments and expenditures monthly to ensure no fraud. One concern I have is that the financial planner my attorney uses to manage money would remove all my Vanguard funds and put the money into an account for me at Fidelity where he keeps such accounts. I assume any trust or other entity doing this would also take all my money (think of the taxes) and put it in their funds where they manage it. And they will charge me 1% of my value every year to manage the funds. Am I on the right track? Am I missing anything?

Response:

I’ve heard the term “elder orphan” used to refer to older single individuals who do not have family members to step in in the event they need assistance. That can be scary. And it can be worse for issues related to health care since professionals are usually reluctant to fill that role. Fortunately, there are professionals who will serve as financial and legal managers.

You can retain an attorney to act as your agent under a durable power of attorney. And you can hire the attorney or a bank or trust company to act as trustee of your trust. A financial institution would have its own investment professionals while an attorney would be likely to hire an investment advisor or firm. Depending on your arrangement and the level of your assets, the cost is likely to be in the range of 1% annually.

One area where using a professional financial advisor or trustee may be better than you think is that they should be able to move your current holdings without liquidating them, avoiding any tax on capital gain. A Fidelity account, for instance, can hold Vanguard funds.

A significant question is whether you name a professional trustee now to serve along with you or you name them as your successor trustee in the event of your incapacity. The cost of naming the outside trustee now is that you will be paying their fee for more years. But the benefit is that you will be able to test them out while you are able to make changes if you choose. In addition, you and the trustee will get to know one another better so that they will be more likely to manage the trust for you in the way you would like when and if the time comes.

Finally, don’t be too concerned about the cost of using a financial advisor or professional trustee. They generally provide sufficient service and financial acumen to more than justify their 1% fee.

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