Is it Time to Take Control of Your Parent’s Finances?
Q. My dad is in his mid-80’s and he still resides in the home where I grew up, without much outside assistance. He is healthy and takes exercise walks daily, to keep himself fit and active. When it comes to cognitive health and memory, he seems to remember most things. However, he is beginning to repeat himself a lot. When I went to his house last week, it was dark because he forgot to pay the electric bill, and forgot where he put it, so they shut off his electricity that morning. After we got his electricity turned back on, I found expired bills in his kitchen drawer. The trash company’s bill was stamped “final notice.” The cable company’s “bill” was actually a check, because he had paid the same bill twice.
I am concerned that my father is unable to handle his finances and, as far as I know, he has never signed a power of attorney. How do I approach this with him and step in, and what steps should I take to transition myself to being in control of his finances? Thanks for your help!
A. Seniors sometimes become incapable of handling their finances and paying their bills on time, or they may become vulnerable to scams or identity theft, requiring the protection and intervention of their children.
A new study published by the Center for Retirement Research at Boston College (CRR) reveals the ages at which aging Americans lose their ability to pay bills, handle debt, maintain good credit, assess an investment’s potential return relative to its risk, and detect fraud. The findings show that most people who don’t suffer from cognitive impairment can continue managing their money in their 70s and 80s.
However, according to the report, “most people with a cognitive impairment will need help managing their money to prevent fraud or abuse and providing this assistance effectively will require overcoming several obstacles.” This seems to be the situation you’re encountering with your father.
Having a Talk with Him
Now is a good time to have a discussion with your father about his finances and what you are witnessing (unpaid bills, utilities being shut off etc.). To start the conversation, you might want to print out this article and give it to him to read, and then launch into your discussion immediately after he has read the article. During your conversation, be sure to explain your desire to help and protect your father, not control him. If he seems agreeable, ask him to provide a list of all his financial resources, including bank and brokerage accounts and safety deposit boxes. Ask to see his tax returns, bank, and brokerage statements and credit reports, and ask that he list any financial and tax advisers. And be sure to have him make an appointment to see us to have a power of attorney drawn up, along with other incapacity planning documents, including an advanced medical directive, long-term care directive, and lifestyle care plan.
If He Resists
While some parents may be relieved that financial responsibilities are taken over by their children, others resist giving up control, particularly when drawing up a Power of Attorney seems to reverse the parent-child role. If this is a situation you face, you should assure your father that he can cancel a Power of Attorney (POA) at any time and that he isnot giving up the right to handle his own affairs, so long as he is legally competent. If you are the designated agent on your father’s POA, he should think of you as an assistant ready to step in if he needs help. As long as he is competent, your father can give you as many, or as few, powers as he wishes, including the authority to pay expenses, invest, file and pay his taxes, operate his business, and transfer property.
Something you can do if your father still refuses help is to offer to help him just with his taxes or see if he needs assistance cleaning out a filing cabinet. Or, if your father is tech savvy, you can organize his online passwords or set him up with a smartphone budgeting app. By helping with these elements, you’ll likely get a lot of ideas of what needs to be done.
Always remember: You are offering your dad assistance, not taking over his life. Offer your help gently and with respect.
Should Your Father Take a ‘Financial Capability’ Test?
If you and your father think it’s a wise idea, it might be well worth having his financial capacity tested, to gauge whether he is capable of managing his finances independently, needs help on some tasks, or is incapable of controlling his finances.
Financial capacity relies on two key abilities: 1. performing financial tasks and 2. making financial judgments, which requires memory, attention, and information processing.
Evaluations are typically done by psychologists or psychiatrists — as part of disease management or Alzheimer’s care, but sometimes people get evaluated for legal reasons. Government systems that pay benefits also have a process for assessing capacity as well. For example, the Social Security Administration and the Department of Veterans Affairs have their own capacity assessment procedures.
How to Manage Your Father’s Finances
If it is determined that your father can no longer manage his finances, here are some recommendations to assist you in your new role:
1. Locate all financial documents. Look for your father’s essential documents in desk drawers, safety deposit boxes, and filing cabinets. You need to find his bank and investment statements including retirement accounts, insurance records, real estate deeds, car titles, as well as medical records, especially if paying for medical expenses is a growing financial concern.
2. Check his cash flow. Take an inventory of exactly what assets your father has and a create a budget showing what income comes in each month and what expenses go out.
3. Streamline spending. Check for ways to simplify his finances and trim spending, wherever possible. Look for credit cards he doesn’t use, a cell phone plan or cable bill that provides way more than he needs, etc.
4. Get help from your siblings. If you have siblings, you can focus on doing the day-to-day finances and someone else could be doing the more strategic or long-range things. If neither you nor your siblings feel competent to take control of your parents’ investments, you can reach out to a Daily Money Manager and/or financial advisor.
5. Make Sure Dad Has a Good Financial Power of Attorney. Discuss with your dad (and siblings) whether you, one or more of them, or some combination, should act as Agent(s) under your dad’s Power of Attorney, and make sure that he has a good power of attorney done by an experienced Elder Law Attorney such as myself, not a junk document done online or something picked up from an office supply store.
A Power of Attorney is a legal document created by one person, known as the principal, to give another person, known as the agent, legal power to act on behalf of the principal. It is the most important legal document that your father, and every other adult, needs to have. The POA document can grant either broad and unlimited powers or limited powers to act in specific circumstances or over specific types of decisions. Typically, a Power of Attorney is effective immediately, but is intended to be used only when necessary at some future date. However, in your father’s case, he will be signing one intending that it be used immediately by you and or one of your siblings
Plan Ahead and Be Prudent
As you know, one of the most important decisions anyone can make is to plan for the future and for your family’s future. The time to plan is always now.
Many of you may not know that through the years, I have begun to encounter more and more clients who need financial services in addition to legal services. Because of this need, in order to more effectively serve all of our clients, I offer specialized elder-focused financial services in addition to our traditional elder-focused legal services. Read more about these services here.
Besides making sure your father has a good incapacity plan and estate plan in place, you need to make sure you (and your spouse if you are married) have a good incapacity plan and estate plan in place. If you do have a plan in place, how long has it been since you updated your planning documents? Don’t let more than 3-5 years pass between updating your plan, as the cost to your family if you neglect your plan could be disastrous. Be sure to ask about The Farr Law Firm’s Lifetime Protection Program, which ensures that your documents are properly reviewed and updated as needed, so that they will have the proper effect under the law.
Ready to plan or update your planning? Please contact us as soon as possible to make an appointment for a no-cost initial consultation:
Fairfax Power of Attorney: 703-691-1888
Fredericksburg Power of Attorney: 540-479-1435
Rockville Power of Attorney: 301-519-8041
DC Power of Attorney: 202-587-2797