“We know there are many millions of Americans who cannot manage their own money due to cognitive impairments and other disabilities,” says Naomi Karp, senior policy analyst at the Consumer Financial Protection Bureau’s Office for Older Americans. Karp says 5.3 million Americans have Alzheimer’s disease, and that’s just one type of dementia. Some 22 percent of Americans over age 70 have mild cognitive impairment, she adds, which can make it difficult for them to manage their day-to-day finances. People with mental illness or disabilities also have others manage their money for them; she says that there are at least 25 million people in the U.S. with the legal authority to manage someone else’s money.
That’s why the bureau published a series of guides in 2013, “Managing Someone Else’s Money,” which can be downloaded for free on the agency’s website. Since most people managing money for friends and family members are not financial professionals, they often don’t understand their legal and ethical obligations, Karp says. Even caregivers who mean well make common mistakes, such as adding their own name to a joint bank account or borrowing money with the intent to pay it back later. “We’re trying to help the well-intentioned but clueless people. Some mistakes people make are pretty bad,” Karp says. To avoid falling into that category, consider these tips:
Develop, Write Down Plans When Everyone Is Healthy
The Hulls suggest “putting one’s affairs in order,” including writing a will and creating power of attorney documents (as well as a health care proxy), well before you think you’ll need one. “If a person becomes incapacitated, even for the short-term, you want to make sure your wishes are known,” Jon Hull says. The couple also suggests specifying your wishes for any digital assets, such as the rights to domain names and social media accounts, as well as writing out an overview of all assets, accounts, insurance policies, storage units and other information. “These conversations are only difficult if you wait too long to have them,” Jon Hull says.
Ease Your Parents’ Fear of Losing Control
“When someone is older, they are losing control over all different aspects of their lives. Their health care situation becomes precarious at times, you’re losing so many things, so an older person will grab ahold of everything they can control. When a family member or friends tries to help them, they sometimes shut down,” says Kathleen Hastings, a portfolio manager at FBB Capital Partners in Bethesda, Maryland, who has expertise on financial issues facing seniors.
To help ease those fears, Hastings suggests explaining your offer to help them in a way that makes it clear you are not trying to take over their finances, but merely serving as support for them. When Hastings noticed her mother struggling with some financial tasks, she said to her, “Would you like me to be your administrative assistant? I’ll be your helper.” Parents, Hastings adds, still need to feel they have control over their lives.
Involve Other Family Members
When one sibling starts managing parents’ money it can create tension among other siblings or family members. Hastings suggests holding a family meeting to designate the point person who will make health care and financial decisions, then making sure everyone is in agreement. To help protect yourself from being accused of mismanagement, Hastings suggests inviting a witness whenever you visit a safety deposit box or handle money. People with dementia can become fearful that others are stealing from them and can even falsely accuse their children of such actions.
“Make sure you have copies of everything to protect yourself from being accused,” Hastings says. In other words, keep a paper trail of all financial activity. “People act differently when it comes to money, and all sorts of issues can raise their ugly heads,” she adds.
Don’t Add Your Name to a Parent’s Bank Account
It might seem like the simplest way to manage an account, but putting your name on an account to give you joint ownership can create a range of problems: It could trigger the gift tax or mean that all the money goes to you if your parent dies, when in fact the parent did not intend for that to be the case. It also makes you vulnerable to any creditors or debts carried by your parent and vice versa. “It’s better to have a single account owner with an authorized signer or a power of attorney on the account,” Hastings explains.
Protect Money Against Thieves
The “Managing Someone Else’s Money” guides contain information on avoiding financial scams, which are often targeted toward older Americans. Adding an alert for any account activity to a bank account or credit card, for example, can help notify you of potential problems.
Learn, Follow the Rules — Including State-Specific Ones
If your parent receives government benefits, such as a Veterans Affairs pension or Social Security payments, then that government agency will need to give you authority to oversee those benefit checks. But you would need a separate power of attorney document for the authority to handle the rest of your parent’s assets. “There’s a lot of confusion about that,” Karp says. To help sort it out, the CFPB will soon release state-specific guidelines on managing others’ money to augment its national guide.
In the Hulls’ case, a trust and will that had been put in place before Terrie’s father’s death enabled Terrie to go to court to protect her mother’s remaining money. “Having that legal right given by the parent is key,” Jon says. It’s a big responsibility: When you become the fiduciary for someone else’s money, you are responsible for acting in their best interest and managing their money responsibly, which includes keeping it separate from your own money.
Terrie and Jon Hull now travel around the country giving workshops on preventing the kind of family tragedy they encountered. Terrie says workshop participants often share their own tales of strangers and acquaintances preying on the money of their aging loved ones. “Everyone has a story,” she says.