Recently, one of my clients had a serious fall at home, breaking his hip, and ended up in the hospital. As a result of his injuries, it was clear that he could not deal with his finances for the foreseeable future and had to hand over trading authority to his daughter. As this all happened suddenly, decisions had to be made in a hurry, leading to mediocre results. If my client, who is over 80, had agreed to hand over trading authority earlier, he and his daughter would have been better prepared for a scenario where he could no longer make financial decisions.
What is trading authority?
A trading authority form is a legal document that allows someone else to act as your agent over your account. Your agent can have limited trading authority, which means that he can make transactions on your behalf but not withdraw any money, or full trading authority, which means he can make withdrawals from your account.
A trading authority is similar to power of attorney. However, whereas power of attorney can be applied to all of your assets or to different aspects of your life, such as health care, trading authority only relates to your investment account.
Why should I give anyone trading authority?
Advanced age is not the only reason for granting someone else trading authority. What if you were going away on a sabbatical or a long vacation? Handling your account on a day-to-day basis may not be practical, so you would ask someone trustworthy to do it for you.
As you get older, even if you are in perfect health, it may be wise to give trading to someone you trust to keep your best interests in mind. Then you can work together with him, handing over the reins gradually, before the time comes when you may no longer be able to be in full control. At the same time, if you are thinking of handing trading authority over to a friend or relative, make sure that it is only someone whom you can trust implicitly because a wrong decision can put your finances at serious risk.
For more information about trading authority or power of attorney, watch this 3-minute video that I made called, “Should I give someone power of attorney?”
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published May 16, 2016.