Manage your parents’ money–without losing your mind

Consumer Reports

Imagine your mom falls or has a stroke and is unable to speak. If you had to take over her finances, would you know what to do? Dealing with a parent’s poor health is stressful in itself. Having to take over her finances at the same time can be overwhelming, especially if you’re scrambling to find the documents you need.

The ideal situation, of course, is to make plans long before your parents need help, says Bradley Frigon, an elder-law attorney in Denver and president-elect of the National Academy of Elder Law Attorneys, a professional association. Otherwise, your parents may no longer be capable of telling you how they would like their finances handled or of executing documents needed for you to carry out those wishes.

Have a talk. While discussing finances with your parents can be awkward—they might think that bringing up the subject is premature or intrusive—it is a necessary conversation to have, says Linda Fodrini-Johnson, a licensed family therapist in Walnut Creek, Calif., and president of the National Association of Professional Geriatric Care Managers. Its members are trained to evaluate an older person’s ability to handle various activities of daily living, such as paying bills. Include your siblings if possible to keep everyone involved and avoid hard feelings in the future.

One way to begin is by speaking about your own situation, suggests Steve Hartnett, associate director of education at the American Academy of Estate Planning Attorneys. “You can say that you and your spouse recently talked about what would happen to your family if something happened to you, and ask your parents if they’ve thought about that too,” he said. If your parents are receptive, you can start to talk about how they would like their finances managed if they need help in the future, and who they would like to make financial decisions for them.

If they are reluctant to talk, you can ask a professional they know—their lawyer or accountant, for example—to meet with you and your parents. “Parents often find it easier to discuss financial matters with children if an adviser they trust is present,” Fodrini-Johnson said.

Gather key documents. To take charge of a parent’s finances during his or her lifetime, you can use either a durable power of attorney (DPA) or a revocable living trust. Both will name who takes over if one spouse can no longer handle his or her finances, and name the child or children who will make financial decisions if both parents are incapacitated. Those documents need to conform to the laws of the state where your parents live. So if your folks don’t have a lawyer already, suggest they find one who focuses exclusively on estate planning and elder law. You can find one at naela.org.

A DPA is a simpler document and might cost about $1,000 to prepare for one parent or $1,500 for two. If your parents’ finances are fairly straightforward—their money is in bank accounts, money-market funds and certificates of deposit—and probate is not an issue, DPAs should be sufficient, Hartnett says.

A revocable trust, on the other hand, also holds assets that will pass to beneficiaries without going through probate. Setting one up could run about $3,000 for one parent or about $3,500 to $4,000 for a joint trust. “If you think you will be dealing with selling a family home or other real estate at some point,” Hartnett said, “a trust might be better because title companies prefer one over a durable power of attorney.”

To prevent abuse by a child and to make parents more comfortable, either document can build in oversight, adding a second person with whom the first would have to act jointly. He or she could be another sibling. The responsible child’s power to change the parents’ wills or beneficiary designations can also be limited.

Get other needed information. If they haven’t already done so, ask your parents to make a list of where they keep important documents, such as the deed to their house, tax returns, wills, and powers of attorney. It should also include the name and contact numbers of their banks, doctors, accountant, attorney, mortgage company, financial planner, and brokerage firm. Whoever takes over their finances will also need to know where their income comes from (pensions, Social Security, and individual retirement account withdrawals, for example), and will need their Social Security numbers, as well as numbers for their bank and investment accounts and insurance policies. Your parents can keep this information in a safe place at home and keep a copy on file with their attorney.

Do you see late notices on your parents’ desk? Do they complain about collectors calling them about bills they know they’ve already paid? Are your parents upset about all the online passwords they can’t seem to remember? If you consistently observe these behaviors, it may mean they’re in need of some financial assistance.

Step in slowly. If you are the one providing help, do so in a way that preserves your parents’ dignity, Fodrini-Johnson says. One way is to suggest that you take over one of their financial responsibilities, such as paying bills, so that they have more time to do what they enjoy. If possible, do not take away all their financial responsibilities at once.

Unless their mental capacities have lapsed, discuss with your parents everything related to their finances before you make any decisions or changes. Make sure they understand that you want to help them rather than take away their independence. Remember that legally you are a fiduciary if you are the decision-making person named in the revocable trust or DPA. You must at all times act in your parents’ best interests.

Document everything you do. Keep meticulous records and share all information with your siblings. Such communication can prevent tension and even legal challenges down the road.

So, for example, if you pay Mom’s bills, keep copies of every check you write or online bill payment you make. Keep bank statements, too. If you pay for anything with Mom’s cash, keep receipts. If you meet with a financial planner or attorney, keep thorough notes of what they advise and what you paid them.

Consider assembling a financial team.You can hire someone to handle the day-to-day financial tasks if you can’t take on that job. A certified geriatric-care manager can help you find local qualified people. Or do a ZIP-code search at caremanager.org.

Financial planners, tax preparers, and attorneys can help you avoid common (and expensive) mistakes. They can also help you decide how to budget your parents’ money or determine whether an ill parent might outlive his or her savings. And your siblings might feel more comfortable knowing that you’re not trying to manage your parents’ financial investments on your own.  

What happens if you don’t have that talk

What if a parent refuses to discuss his finances with you or becomes unable to take care of money matters before you can discuss his wishes? If there is no signed power of attorney or revocable living trust, you’ll need to go to court.

To be named a guardian, which will allow you to control your parent’s finances, you’ll have to prove that your parent is mentally or physically incompetent, which is not a pleasant or quick process, says Kerry Peck, an elder-law attorney in Chicago. “We litigate these cases nearly every day,” Peck said, “and many family disputes are aired.”

In most cases you’ll need at least one physician to certify that a parent can no longer manage alone. A judge will determine whether you can handle your parent’s affairs. The process could cost $10,000 to $20,000 and take several months or more, says Steve Hartnett of the American Academy of Estate Planning Attorneys. If a judge doesn’t appoint a temporary guardian your parent’s bills won’t be paid unless you or your siblings take care of them and seek reimbursement when the case is settled.

If you’re named your parent’s guardian you’ll probably have to become a financial detective to uncover the details to act on his behalf. If your parent keeps his financial information in an easy-to-find place, consider yourself lucky. Otherwise, your best bet is to find his most recent tax return. “Most of your clues will be on Schedule B, where he listed dividends and interest income and the names of financial institutions,” Peck said. If you suspect that your parent worked with an accountant, attorney, or financial adviser, contact that person to help you round up financial information.

This article appeared in the November 2013 issue of Consumer Reports Money Adviser.



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