Link: http://blogs.forbes.com/advisor/2011/04/25/who-will-make-your-investment-decisions-when-you-cant/

From Forbes.com (April 25, 2011) “Who Will Make Your Investment Decisions When You Can’t?”

"Among the many things that are important to deal with regarding your retirement accounts, you must consider the impact of your own disability…"

Who will make your financial decisions when you no longer can?

One of the most important, and often overlooked, aspects of estate planning is preparing for the possibility of your own incapacity – whether through illness or accident, and whether temporary or permanent. In the event that you are unable to make financial decisions – such as filing your taxes, selling property, or making investment decisions – have you given someone the legal authority to act on your behalf?

You may have heard of a Durable Power of Attorney (DPOA), which is a legal document giving another person (the attorney-in-fact) the legal right to do certain things (powers) for another. A DPOA may be very broad, or very limited and specific. For example, you could designate someone to act on your behalf to make investment decisions and work with your IRAs, including taking distributions from them, converting them, and creating new IRAs from your current accounts. Forbes recently offered some food for thought with a hypothetical case:

Take for example a situation where a terminally-ill father has decided that his gift to his children upon his passing will be the total of his IRA, converted to Roth and with the taxes paid from his other sources, so that the Roth account will be available tax-free to the children.  The remaining balance of those other sources (a taxable investment account) is to be distributed to his alma mater per his will.  He has discussed this with his children and his attorney, however, prior to enacting this maneuver he slips into a coma, which lasts until his passing. Now his children will still have the benefit of the IRA, but they will be paying tax on each distribution from the account during their lifetime(s). And since his will stipulates that the taxable investment account’s balance is to be distributed to his alma mater, those funds are not available to pay the tax on the IRA distributions. This isn’t what the father had hoped would occur at all.

A properly drafted DPOA could have averted the problem by designating someone to act on the father’s behalf to complete the procedure. Note that Powers of Attorney terminate upon the death of the maker and may terminate when the maker (principal) becomes incapacitated. When the intent is to designate a back-up decision-maker in the vent of incapacity, then a Durable Power of Attorney should be used.