What Is Agency by Necessity?
Let me explain agency by necessity to you directly: it's a legal setup where one party steps in to make crucial decisions for another when no official agent, like someone with power of attorney or guardianship, is available yet. Courts acknowledge this in emergencies or urgent scenarios where the person in need can't give clear permission. If you're in this role, you must act only for the beneficiary's benefit.
In the world of finance, this often means handling someone's investment or retirement choices on their behalf.
Key Takeaways
- Agency by necessity lets a person or entity act for another when the beneficiary can't grant permission explicitly.
- These cases usually stem from urgent or emergency situations, always prioritizing the beneficiary's needs.
- In finance and investing, it provides brokers or advisors with discretion to act for clients.
Understanding Agency by Necessity
You should know that emergencies often trigger agency by necessity in court views. For instance, if someone is ill and can't handle a key investment or retirement choice, this allows an attorney, parent, or spouse to decide for them.
This becomes vital in wealth management. Think about wealth managers who deal with wills, trusts, and passing down inheritances. If the family member managing the wealth gets incapacitated from an accident or illness, another qualified family member with similar financial knowledge can step in as the agent by necessity.
But I have to tell you, this can get complicated, especially with high-net-worth individuals or wealthy families deciding on wealth for future generations. Other family members or stakeholders might challenge the decisions made by the agent by necessity.
Agency by Necessity and Estate Planning
Even if people plan their estates before becoming unable, sometimes these duties fall to an agent by necessity. Estate planning covers essential tasks like passing assets to heirs and handling estate taxes. You'll often need an attorney for this. It also involves managing properties and financial duties. If someone owes debts and isn't mentally fit to pay them, an agent by necessity can create a repayment plan.
Assets in an estate might include houses, cars, stocks, bonds, other financial items, paintings, collectibles, life insurance, and pensions. These get distributed as the person wanted after they pass. Beyond keeping family wealth and supporting surviving spouses and children, many plan estates to fund education for kids or grandkids or to give to charities.
Specific Estate Planning Tasks
- Writing a will
- Limiting estate taxes by setting up trust accounts in the name of beneficiaries
- Establishing a guardian for living dependents
- Naming an executor of the estate to oversee the terms of the will
- Creating/updating beneficiaries on plans such as life insurance, IRAs, and 401(k)s
- Setting up funeral arrangements
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