Taking control of finances for aging parents

When your aging parent is no longer able to keep track of bills, investments and money management, someone else must step in. Often the parent has appointed an adult child or other relative to do the job. It can be a lifesaver or it can create explosive conflict and unnecessary costs. Here are some common mistakes.

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Mistake #1: Failure to communicate

Most aging parents do not want to give up control. They have appointed someone to be their agent as power of attorney and/or they have appointed a successor trustee. But when it comes time for that person to take over, there can be resistance and sometimes hostility from the aging parent. If your aging loved one is declining and doesn’t realize it or won’t admit it, be respectful. Keep all explanations simple. Offer to pay bills first, as this is often an area where failure to keep track is recognized somewhat by the elder. Break the news gently that you will be helping out. Don’t sneak or do this without saying anything. You may get pushback, but you are doing the job you are required to do, and resistance must not stop you. An impaired parent can be ruthlessly ripped off by unscrupulous people if you do not take over financial management.

Mistake #2: Going to your aging parents’ bank with only that power of attorney document with your name on it and expecting it to go smoothly with just that

Most banks are required to report suspicious activity that could harm a customer. They are supposed to watch out for financial elder abuse. Since the power of attorney (POA) is a revocable document, the bank officer does not know if the elder was manipulated into signing it and it is a ticket to steal, or if it is legitimate. They sometimes want the elder to sign the bank’s own POA document. But if your aging parent is not fit enough to do so and that’s why you are taking over financial management, the elder may be not legally capable of signing another POA document. The bank will likely want some proof that your aging parent is incapacitated. They often like letters from doctors verifying this fact. That can be a real problem for you. But if you can get a doctor’s letter of incapacity, take it with your POA to the bank if you want results.

Mistake #3: Failure to look at your aging parent’s trust to see how it defines “incapacity”

You need to know who can legally take over if your aging loved one becomes incapacitated for finances. You need to know how your aging parents’ trust defines incapacity and how it is determined. Different lawyers draft these trusts in widely different ways, using software. There is an appalling lack of creativity in trusts defining what to do when the successor, who may be you, must take over responsibility as trustee. Failure to anticipate difficult scenarios can create a nightmare for families. The estate planner must address what to do if your aging parent is impaired and won’t go to a doctor to get tested and examined on the question of capacity for finances.

In many cases, the requirement of getting not just one, but two doctors to say, in writing, that a person is incapacitated for finances, is built into the trust and it cannot be changed. That is exceptionally dangerous because many doctors are reluctant to get involved in a legal question of incapacity. They may not give you the letter you need. Further, there may be several specialists who treat medical conditions for your aging parent. All see your elder briefly and are focused on the specialty at hand: cardiologists, internal medicine doctors, orthopedists, etc. They do not have sufficient information to make a knowledgeable statement about incapacity and they too may decline to give you a letter of incapacity about your aging parent. You can be really stuck if this happens.

Cognitively impaired elders are free to do whatever foolish things with their money that occur to them for as long as you as potential successor trustee do not have the “proof” of incapacity the trust or POA may require to get your impaired loved one off the trust. There are ways to avoid this.

One thing you can do early on is to have a conversation with your aging loved one to discuss the “worst case scenario” of becoming impaired. Do this proactively, perhaps at the time of retirement. Consider not saying “if you ever got dementia”. That triggers fear in many people and can end the conversation. They believe it will never happen to them. It is a better strategy to suggest that you need to know what would happen if they got bonked on the head in an accident. Say how you would want to protect them.

Although many aging parents are secretive about their finances, it is worth a try to get them to discuss how their estate plan addresses the issue of becoming incapacitated and unable to manage finances. Ask to see the trust if your relationship with your aging parent is open and congenial. Ask for permission to speak with their estate planning attorney, assuming they have one. With permission, you can meet with the lawyer with your aging parent to find out what is written in this part of their trust. If the trust says the parent needs to be declared incapacitated by two physicians, that can spell extreme difficulty for you, the possible successor trustee. If your parent is still fully competent, when you meet with the lawyer, that particular phrasing can be amended so that you have a safer and more workable solution for this issue in the future.

Planning ahead like this and you having clear information about worst case scenarios is crucial to managing a parent’s possible decline successfully. Pre-emptive action can avert the disasters created by poorly drafted estate planning documents in aging parents’ trusts and power of attorney assignments.

We all need to face the prospect of potential loss of ability to safely and independently manage finances. Most people do need some help with money matters as they age. When the legal paperwork is well done, everyone is better protected.

This article was written by Carolyn Rosenblatt from Forbes and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

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