Common mistakes and best practices
How involved are you in your parents’ or in-laws’ finances?
How involved do they want you to be?
How involved do you think you should be?
You may not have talked in detail about managing your parent’s finances yet. The top two reasons (out of the 37) are:
1) it’s uncomfortable to talk about and;
2) you aren’t sure exactly what the next steps are.
The other 37 reasons include things like “I don’t want to talk to my siblings about it”, “I have a kid’s soccer game to go to” and “I’d rather have a colonoscopy than dive into this.” We cannot save you from the colonoscopy, but we’ll give you a brief “financial companion” overview to get started.
We’ll assume the older adult in your scope of care is currently managing their own finances (even if they are no longer doing it well.) Step One: Engage them in a conversation about their wishes. There are many ways to approach the conversation. One playful way is to use this “mad lib” as a springboard to a more serious conversation.
Who will manage their finances if/when they are no longer able to do it themselves? If you want a deeper dive into suggestions for how to start complex conversations like this, download the conversation guide.
Be open to the fact that, for whatever reason, the older adult may have a strong opinion about who will play this role—and it might not be you. If you are not the one chosen, don’t take it personally. Alternative possibilities include other family members or a professional financial planner.
Common financial “companion” strategies
There are a number of different ways to help older adults manage their finances. The following information outlines the drawbacks and risks of certain approaches and suggestions for successful structures
“Borrow” their log-in credentials
If you are helping the older adult by accessing their account using their credentials you could find yourself in a sticky situation. There may come a point when the older adult is not able to confirm that they’ve given you permission to do so.
Sign paperwork on the older adult’s behalf
If you do not have the legal documents in place (like the power of attorney), signing paperwork as the “responsible party, guarantor, or cosigner” means that you may be personally liable for the expense. If you are unsure of the financial obligations you could personally face by signing an agreement, seek legal counsel and don’t rush into signing something before you are certain how you could be personally liable.
Create a joint account
Setting up a joint account with an older adult or adding your name to their current account could seem like an easy solution, but there are clear drawbacks.
Let’s examine the pros and cons of the joint account structure.
- It is easy to monitor transactions and account balances which helps to protect against fraud.
- It’s convenient to make deposits or withdrawals of cash to pay for the older adult’s expenses. There is immediate access to the funds in the account at the time of the older adult’s passing. Those funds could be used to pay for final expenses.
- Money in the account when either person dies belongs to the surviving account holder. This can create conflicts among siblings or other potential heirs.
- If you have your own financial problems, creditors can take funds from the joint account to settle your debts which means the older adult’s funds are at risk.
- If you have children seeking financial aid for college, assets in the joint account could affect their eligibility for aid.
- The older adult’s eligibility for Medicaid could be impacted if you are making withdrawals from the account since those withdrawals could be considered a transfer of assets to you. The result could result in the older adult becoming ineligible for Medicaid for a certain period of time.
- There could be tax implications of having a joint account. If the account earns interest, you’ll have to report the interest earned on your own federal income tax return, as well as the older adult’s tax return. Joint accounts also can have gift tax implications if the co-owners aren’t spouses.
What is the best way to set up account permissions?
There are structures that offer protection for all involved. Yes, they are also more complicated to set up. But as you’ve read, a purposeful account permission strategy can prevent long-lasting negative impacts both financially and relationally.
This table from the Consumer Financial Protection Bureau outlines the various structures for financial caregiving.
Legal permission to manage finances
A durable power of attorney is a legal document in which one person assigns another the power to make financial decisions on their behalf should they become unable to make sound decisions. The person assigned power of attorney is called an “agent” or “attorney-in-fact.” (This power of attorney is different from a healthcare power of attorney which appoints someone to make medical decisions on someone else’s behalf should they become incapacita
A financial power of attorney document makes you a fiduciary which separates your own personal finances from financial actions and decisions you make on behalf of the older adult. It’s important to note that the older adult must be of sound mind to grant and revoke the power of attorney.
If the older adult does not have a completed financial POA, an attorney isn’t required to get this completed, except if the older adult already has cognitive impairment. If they are already cognitively impaired they can’t legally sign the documents required to set up a power of attorney. (This is one reason why it’s a great idea to set up a POA early.)
The laws vary by state with some states requiring two witnesses and others a notarization. It’s wise to use an attorney for this process, but a notary at a minimum. If you want to hire an attorney to put together a POA, we recommend searching for one through the National Academy of Elder Law Attorneys where you can do a state-specific search.
What happens if a power of attorney is not in place?
Without power of attorney or a trust, the family is at risk of having to go to court later to file for guardianship if the older adult becomes incapacitated—a process that can be expensive, time-consuming and potentially divisive.
Using the power of attorney to manage accounts
Institutions have different guidelines for how to allow access to account information. It’s wise to contact the financial institution to ask what is required so you can easily put things in place outside of an emergency situation. For example, at a BECU bank in Seattle, once the Durable Power of Attorney is presented at the branch, the one designated as holding the DPA completes a form which is then signed and notarized at the branch.
Understanding your responsibility
If you are responsible for helping an older adult manage their finances, you must use that permission and money properly. Failing to do so is considered a form of abuse and caregivers are bound by the laws protecting older adults.
To help manage this responsibility, use these four tips to help handle funds in a transparent manner.
- Keep detailed notes with dates and details about how funds were used. Keep a written record of expenses paid from the joint account, including noting reasons in the checkbook register’s memo field. This record-keeping is actually required by law.
- Never borrow from the account.
- Consider putting an app in place that offers remote monitoring of financial transactions and provides alerts like unpaid bills or unusual activity. Email notifications can also be set up via the bank of choice.
- Share financial updates and decisions with siblings and other relevant family members even if they don’t ask. Doing so will help keep possible incriminations and disputes at bay. Consider setting up quarterly family meetings to review financials.
Once you have the right paperwork permissions in place, you are ready to gather and confirm an updated inventory of accounts and assets. Without this list, it’s just a “best of luck treasure hunt”. This Account Permissions Checklist shows where and what the power of attorney’s name needs to be added to. Additionally, your Ways & Wane GoKit Medical Planner has a place where all of this can be filled in.
While this may seem daunting, it’s worth it to carve out time to put things in place in order to show up as your best self for the older adult for whom you care. It’s what you can hope someone will do for you someday. You can do this and will be proud you did!
Now schedule that colonoscopy.
Elizabeth Dameron-Drew is President of Ways & Wane.
We are not accountants or lawyers. Please consult professionals as you manage your financial situation.