Aging, injuries, addiction, and mental health issues make it difficult to manage one’s own finances. Sometimes an adult child or close family member must step in and help with important financial decisions or routine bill paying.
It’s estimated that 26 million older Americans granted power of attorney to a trusted family member to help with important financial decisions. That doesn’t account for the younger population who needs help for other reasons too.
So what should you know if you help someone manage their money? Read on to learn some important tips.
Separate Yourself from the Situation
Most importantly, remember, you aren’t managing your money. You are managing money on behalf of someone else. You should operate in their best interest and how they want their money handled. If you can, get to know your loved one’s wishes for their finances before they become unable to handle them for the best results.
Understand the Situation
Get copies of your loved one’s bank statements, bills, and insurance policies. Know what they have, how they spend their money, and most importantly, what bills you must pay.
Create a budget with your loved one (if possible) or by yourself if they are no longer capable. This will help ensure you cover every bill, know what requires payment, and how your loved one handled their finances. Did they contribute to a retirement fund, savings account, or another emergency fund? Should you keep contributing to it? Were they making regular donations to the church or other charities? Do they have the financial means to continue these donations?
Pull all insurance policies as well, including health, home, and life insurance. Know if and when claims should be filed and file them on behalf of your loved one. Track all claims, refunds, and all retirement withdrawals, keeping careful track for tax purposes.
Know your Role
As a fiduciary (legal guardian of your loved one’s assets), you can play one of several roles:
Power of attorney – This is a legal move. Your loved one appoints you POA, allowing you to make financial decisions for them. When your loved one assigns a POA, there aren’t court battles or an immediate rush to obtain guardianship. You can step right in and care for your loved one’s finances with a durable financial power of attorney.
Trustee – Your loved one can set up a revocable living trust, naming someone as the trustee. This person can take over the financial responsibilities if your loved one becomes incapacitated. The trustee can make financial decisions and protect your loved one’s assets.
Professional fiduciary – If allowing a family member to handle the finances is too difficult, a professional fiduciary may be necessary. This is useful when finances are complicated or family members live long distance. A professional fiduciary is a financial professional who should operate in a fiscally responsible manner with your loved one’s best interests in mind.
Give careful thought to taking care of your loved one’s finances. Discuss all the important topics including caregiving services. Who should you pay? Should you pay yourself if you take on the role? Does your state allow it? AARP addresses these issues and more and is a valuable resource.
Managing other people’s money is a big responsibility and one you shouldn’t take lightly. The Consumer Financial Protection Bureau offers great resources including a free guide to get you started. Get as much help as you can while your loved one is of sound mind so when the time comes, everyone is on the same page.