For aging seniors, managing finances only becomes a greater burden with each year. The mental and emotional toll of sifting through documents, paying bills, managing investments, and keeping track of spending can cause undue stress and even impact seniors’ physical health. Elderly Americans are also a frequent target of financial abuse and fraud. In many families, the solution is for a child to take over the finances of his or her aging parent.
According to the Consumer Financial Protection Bureau (CFPB), approximately 22 million people age 60 or older have named someone as a power of attorney to make financial decisions on their behalf. Millions more have court-appointed guardians, trustees, or other fiduciaries. Seniors can also have government fiduciaries, such as Social Security representative payees or VA fiduciaries.
In most cases, if your aging parent is considered mentally competent, your first order of business to is to obtain financial power of attorney. This is typically accomplished through a lawyer who will draft the document with stipulations tailored to your situation. For example, your parent could grant you the authority to sign checks or make account withdrawals, but not to manage investments. There are also laws concerning power of attorney that vary by state.
Once you have been granted financial power of attorney, it can be difficult to know where to start.
The CFPB provides a useful resource to help agents under power of attorney manage money for a loved one. According to the CFPB’s guide, fiduciaries have four basic duties.
1. Act in the person’s best interest
The most important thing to remember is to always act on behalf of the person whose financial affairs you’re handling. As the CFPB puts it, “It’s not your money.” Carefully read the power of attorney document to make sure you only do what it allows, and make an effort to involve your loved one in decisions as much as possible. If your loved one has trouble expressing wishes, do your best to do what he or she would have wanted based on past behavior or statements.
2. Manage money and property carefully
As the agent for an elderly person, you will have many new responsibilities, which could include paying bills, overseeing bank accounts, making purchases, managing investments, paying taxes, obtaining insurance, or anything listed in the power of attorney document. With all of these important duties, it is essential to use your best judgment in all matters. To start, make a detailed list of your loved one’s money, property, and debts.
3. Keep money and property separate from your own
To protect yourself as well as your loved one, never mix your money or property with that of the person who you are assisting. One way to help keep the lines clear is to sign all checks and documents as an agent. Keeping accounts in your loved one’s name will help make it clear who is the owner and who is the fiduciary.
4. Maintain good records
You must maintain complete and accurate records. Document everything you do to manage your loved one’s finances, as your power of attorney document or state law may enable someone to check your records. Carefully keeping track of your actions will also help you practice better financial decision making. Good recordkeeping habits include keeping all receipts and notes, avoiding cash payments, and maintaining a list of everything received and spent.
Other practical and emotional concerns
When you’re ready to start taking on a parent’s finances, keep in mind that the power of attorney document is the most essential for all of your duties. Initially, you’ll need to bring the document to the bank, stock broker, tax preparer, and other relevant agencies. In some cases, you’ll be required to fill out additional forms. Then, it’s time to start working out a process. For example, many fiduciaries set up automatic bill paying with one credit card they can pay off each month.
Money matters can easily cause stress and anxiety, so make sure you and your parent or loved one agree to a system that works for both of you. In some families, siblings or friends may not agree with all the decisions that are made. If you are the sole fiduciary, it can be difficult to explain everything to others close to your parent, but pointing to the CFPB’s four duties you follow may help the situation. You can also try sharing financial summaries, unless your parent has said not to do so. Every family is different. CFPB’s guide states, “Some family or friends may be so difficult that it is better not to share information with them. Use your best judgment.”
For additional help, the CFPB’s guide provides contact information for several resources and agencies, whether you are seeking legal assistance, accounting help, family counseling, fraud protection, or other information. The FBI also maintains a list of common scams directed at seniors.