Age and ill health, particularly dementia or other conditions that affect memory and cognition, can impair a person's ability to responsibly manage one of the most important components of their livelihood: their money.
That makes it all the more important to have the uneasy but essential conversation with loved ones about who will oversee their finances, and how, if they no longer can. Here are some important legal and financial tools to understand and potential problems to look out for if you need to take on the role of money manager or find someone else who can.
While your loved one is still able to do things like write checks and use an ATM, discuss adding a trusted family member or friend to their bank account.
This sensible precaution may never be needed. But it can only be taken when the account holder is fully mentally competent and can help ensure that bills continue to get paid if a stroke, short-term memory loss or other health issue leaves your loved one unable to make payments, comprehend money or use sound financial judgment.
If your loved one is in the early days of a progressive disease such as dementia or amyotrophic lateral sclerosis (ALS), having a second person on the account is essential. When needed, that person can step in as a money manager to pay bills, make deposits and withdrawals, and monitor the balance to make sure your loved one is not being scammed or financially exploited.
Once they take over, a money manager should cancel your loved one's credit cards, PayPal, Venmo, department store cards and other lines of credit and payment channels.
If mixing family and finances makes your loved one uncomfortable, there are money-management programs that help with bill paying. To find one, contact an Area Agency on Aging.
What can go wrong?
Many people find a joint account to be the easiest way to pay a loved one's bills and keep track of expenses. But it is not without risks:
- The second person on the account could use the signing or ATM privilege to steal from your loved one's account.
- Creditors of either person may try to collect debts from the account.
- Money in the account when either person dies belongs to the surviving account holder. This can create conflicts among siblings or other potential heirs (see below).
Depending on where your loved one lives, you may be able to avoid these pitfalls with a “convenience account,” which about half the states allow. With convenience accounts, a second person can be designated to make transactions, but only for the benefit of the original account owner. The second person does not get to use the money or inherit it when the original holder dies.
Money managers are obliged to make decisions that are in the best interest of their client or loved one. An open-book policy establishes transparency and can prevent suspicions from taking hold.
- Keep a written record of expenses paid from the joint account.
- Never borrow from the account.
- Write the reason for all checks in the memo field.
- Never use the account to pay for something that benefits you or a third party, even if it also benefits your loved one — for example, buying a car to drive your loved one to the doctor but also using it to go to work.
- If you are being paid to be the primary caregiver under an agreement with your loved one, it's best to ask another trusted family member or friend to be the second on the account. That way you are not paying yourself.
While still healthy, your loved one should choose a trusted family member or friend to serve as fiduciary — a legal guardian of their assets.
A fiduciary makes financial decisions for someone who becomes unable to manage money. This can be done only if your loved one is fully competent. Consult a lawyer to draw up the legal documents.
There are several ways to become a fiduciary for a loved one.
Power of attorney (POA)
Sometimes called durable power of attorney, this is a legal document in which one person assigns another the power to make financial decisions on their behalf, should the assignor become unable to make sound decisions. The person assigned power of attorney is called an “agent” or “attorney-in-fact."
Without power of attorney or a trust, the family risks having to go to court later to file for guardianship of a loved one who becomes incapacitated, a process that can be expensive, time-consuming and potentially divisive. Your loved one must be of sound mind to grant power of attorney, and must also be of sound mind to revoke it.
While of sound mind, your loved one transfers assets to a revocable living trust and names a trustee. If, in the future, your loved one loses the capacity to make sound financial decisions, the trustee becomes responsible for keeping the trust's property safe.
Among other things, this could mean putting valuable items in a safe-deposit box, maintaining insurance, paying taxes and making careful investment decisions. As long as your loved one can make decisions and the terms of the trust allow it, he or she can change or end the trust.
You may want to hire a professional with experience in money management to oversee financial decisions, particularly if your loved one has extensive or complicated assets or doesn't live near you.
A professional fiduciary might be a certified public accountant, an attorney or a trust company officer (an employee of a trust company or other business that manages trusts, such as a bank or investment firm).
"The professional fiduciary can assure that assets are managed in a fiscally responsible way, and the law provides protections if the fiduciary fails to conduct their duties and responsibilities in a manner that is not in the best interest of the senior,” says Tina S. Nelson, managing attorney for AARP Legal Counsel for the Elderly, which provides legal services for older Washington, D.C., residents.
A professional fiduciary should be named in a power of attorney agreement, either as an appointee of the agent or as the agent him- or herself. The agreement should spell out the fiduciary's fees, and it can include a provision giving family members legal authority to relieve the professional if they are dissatisfied with his or her performance. An elder law attorney can help caregivers find an appropriate fiduciary.
These fiduciaries are appointed by a government agency to manage benefit payments issued by that agency — usually the Social Security Administration (SSA) or the Department of Veterans Affairs (VA).
Government fiduciaries are typically family members or close friends of the beneficiary, but a qualified organization (for example, a nursing home) may be selected. They are authorized to use benefit payments for a loved one's care and well-being but cannot manage other assets belonging to that person; that requires power of attorney, a trusteeship or a court appointment.
Social Security.People or entities appointed to manage a recipient's Social Security benefits are calledrepresentative payees. They must keep track of how they use the monthly payments funds and make the records available for SSA to review upon request. (For some payees, these reviews are mandatory.)
Veterans benefits.The VA will appoint a fiduciary for a veteran who is deemed unable to manage benefits due to age, illness or injury. A court order or medical documentation of the person's condition is required. The VA will conduct an examination of the fiduciary (usually someone chosen by the veteran), including a background check, credit review, and interviews with the prospective fiduciary and character witnesses.
If a court finds that someone who does not have a fiduciary can no longer manage money or property alone, a hearing is held to appoint a guardian or conservator. As a guardian, you are required to act in the best interests of the protected person and provide the court with a regular, detailed accounting of your loved one's income and assets and how their money is being spent.
Sometimes the best person for the job ... isn't. The agent with power of attorney, the person on the shared checking account, the caregiver or guardian may be taking money from an incapacitated person. This is calledfinancial elder abuse.
The U.S. Consumer Financial Protection Bureau Actual estimated that actual and attempted losses from financial fraud targeting older Americans topped $6 billion between 2013 and 2017. The average case cost the victim $34,200; those taken advantage of by a fiduciary lost an average of $83,600.
Common signs that a loved one is being financially exploited include:
- missing money or property
- abrupt changes in spending or saving habits
- convoluted explanations for financial activity
- frequent ATM use
- large, unexplained bank withdrawals
- sudden, excessive gift-giving
- a fiduciary, money manager or other person intercepts visitors or calls and doesn't let loved ones speak for themselves
If you think a relative is being or has been exploited, contact law enforcement and your localadult protective services agency. You also can alert the loved one's bank or credit card company. If your loved one is in a nursing facility, callyour state's long-term care ombudsman; you might also want totalk to a lawyer.
Money, even when it belongs to someone else, can bring out the worst in families — particularlysiblingswho are beginning to reckon with the impending death of a parent or, in the case of dementia or Alzheimer's, the ongoing loss of the person they were.
Jo McCord, a gerontologist and family consultant at theFamily Caregiver Alliance, notes these common points of contention:
- The family member who serves as primary caregiver is not the one who holds power of attorney, meaning one has to ask the other for money.
- Family members believe that responsibilities are distributed unfairly or show favoritism.
- A family member shows up only when a loved one is in the hospital.
- The primary caregiver wants to receive payment. How much is appropriate? Should family members who help on occasion also get paid, proportionately?
Tackle such problems before they fester. The Family Caregiver Alliance suggests these steps to minimize or deal with family conflicts:
Make plans togetherfor care and financial duties, before a loved one gets sick.
Keep detailed recordsif you have power of attorney for a parent, and send them to your siblings. Such record-keeping is required by law, and being transparent with the family can reduce distrust and head off legal disputes.
Think about what you really wantfrom your siblings. If you need help in the form of time or money, ask. Don't assume they know you're having difficulty.
Have regular family meetingsto talk about financial and care issues.
Seek impartial counselif a conflict persists — for example, bring a family therapist, mediator, social worker or trusted clergy member into the discussion.
Check the Association for Conflict Resolution'smember directoryfor practitioners in your state — some may specialize in elder care issues. A caregiver support group can also give you a place to vent.
Don't let inheritance disputes divide the family.Discuss estate plans with parents while they're still alive.
If assets are divided in a way you consider unequal or unfair, remember that it was your parents’ decision, not your siblings'. If you suspect there was undue influence or foul play, consult a lawyer or adult protective services.
Learn More About Caregiving
- Tax tips for family caregivers
- Why all adults should have a living will
- Prepare a digital estate plan for future caregivers
- Things to consider.
- Help with banking.
- Support to help someone pay energy bills.
- Getting one-time consent.
- Getting Access to Funds (only available in Scotland)
- If the person has a Post Office card account.
- Helping with day-to-day spending.
- Help with paperwork and meetings.
Property and financial affairs lasting power of attorney
- buying or selling property.
- bank, building society and other financial accounts.
- welfare benefits or tax credits.
- tax affairs.
If a court appoints someone to take care of financial matters, that person is usually called a "conservator of the estate," while a person in charge of medical and personal decisions is a "conservator of the person." An incapacitated person may need just one type of representative, or both.
The five principles are consistency, timeliness, justification, documentation, and certification.
Senator Elizabeth Warren popularized the so-called "50/20/30 budget rule" (sometimes labeled "50-30-20") in her book, All Your Worth: The Ultimate Lifetime Money Plan. The basic rule is to divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and socking away 20% to savings.
- Start the conversation early. ...
- Make gradual changes if possible. ...
- Take inventory of financial and legal documents. ...
- Simplify bills and take over financial tasks. ...
- Consider a power of attorney. ...
- Communicate and document your moves. ...
- Keep your finances separate.
Watch for warning signs
These are just some of signs that your parents may be beginning to lose track of their finances: Unopened mail begins to pile up in their house. They become forgetful about cash. They start getting lots of calls from creditors.
To be your loved one's financial coordinator, they need to name you as their fiduciary, which is a legal guardian of their assets. This allows you to make financial decisions on their behalf if they should become unable to manage their money.
Money managers typically charge management fees ranging from 0.5% to 2% per annum, depending on the portfolio size. For example, an asset management firm may charge a 1% management fee on a $1 million portfolio. In dollar terms, this equals a $10,000 management fee.
The cost for a daily money manager ranges from about $75 to $150 an hour, depending on location and specific services, Nichaman said. Some also offer power of attorney services (which comes with a legal fiduciary duty).
For 2021, the gift tax exclusion has been set at $15,000 per person per year for a joint filer. For example, that means you can give up to $15,000 worth of monetary gifts to your son, up to $15,000 in gifts to your daughter, and up to $15,000 in cash to your little cousin.
- The Law of 10 Cents. When you keep this law, you take 10 cents of every dollar you earn or receive and HIDE IT. ...
- The Law of Organization. Quick: How much money is in your share draft account right now? ...
- The Law of Enjoying the Wait. It's widely accepted that good things come to those who wait.
- banking and saving.
- paying taxes.
- managing debt.
- retirement planning, and.
- estate planning.
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.
Yes, saving $2000 per month is good. Given an average 7% return per year, saving a thousand dollars per month for 20 years will end up being $1,000,000. However, with other strategies, you might reach over 3 Million USD in 20 years, by only saving $2000 per month.
Fast answer: A general rule of thumb is to have one times your annual income saved by age 30, three times by 40, and so on.
In other words, the average household has about $1,729 left over after paying the bills each month. That money can be spent or put toward a number of different long-term savings goals -- like retirement or a college education.
If you're someone's attorney and making decisions about their money, many things count as a gift – not only giving another person money or buying them something. Gifts can include donations to charity, paying another person's school or university fees, or giving them an interest-free loan.
- Testamentary Trusts. A testamentary trust doesn't take effect until after the person is deceased. ...
- Irrevocable Living Trusts. ...
- Revocable Living Trusts. ...
- Medical or health insurance scam. ...
- Telemarketing or phone scams. ...
- Internet Fraud.
The IRS suggests signature authority, which allows an adult child access to their aging parent's bank account. They can use it to pay bills and make purchases as long as they're in the loved one's interest. Your local bank branch can set this up easily with both signatures.
Power of attorney is a legal designation that gives you power over your parent's legal and financial matters.
- Help them downsize. If your parents are finding their current home unaffordable because of its size, it may make sense for them to downsize. ...
- Guide them through a relocation. ...
- Ask them to move in. ...
- Create a budget for them. ...
- Help with maintenance or repairs.
High and Low Ratios
A good expense ratio, from the investor's viewpoint, is around 0.5% to 0.75% for an actively managed portfolio. An expense ratio greater than 1.5% is considered high.
A monthly general management fee typically falls between 8% and 10% of the monthly rent for a single-family home—flat rates are rare for the monthly fee.
A wealth manager can help you invest your funds, provide trust and estate planning services and work with you on a financial plan to minimize taxes and maximize income. Wealth management services generally benefit clients most as they acquire more wealth to invest or manage.
Daily money managers offer services to ensure nothing falls through the cracks, including necessities like paying monthly bills, assisting with tax records, balancing checkbooks, decoding medical bills, and negotiating with creditors.
Unlike a financial advisor, who helps maintain a client's overall finances, a money manager has a more specific job — To manage a client's investment portfolio. A money manager researches and recommends investment strategies for their clients.
- Submit an Application.
- Submit Documentation of Experience/Hours Worked with your application.
- Pass a Background Check.
- Pay a non-refundable Application Fee.
- Pass a Certification Examination.
Remember to convey your rationale as clearly as possible. Talk about your own finances. Detail the precise financial reasons you're not comfortable giving the money. Explain how a loan may cause you financial hardship and (if you feel comfortable) detail to your relative what you can and can't afford.
Under current law, the parent has a lifetime limit of gifts equal to $11,700,000. The federal estate tax laws provide that a person can give up to that amount during their lifetime or die with an estate worth up to $11,700,000 and not pay any estate taxes.
When you pay a friend or family member's credit card bill without any expectation of being paid back, the IRS considers it a gift.
- Share your costs. Explain how much it costs to maintain your home—rent or mortgage, insurance, utilities and maintenance. ...
- Talk about credit. ...
- Show them how to use a spreadsheet. ...
- Consider a parent-managed debit card.
A hard-earned victory or hard-earned cash is a victory or money that someone deserves because they have worked hard for it.
- Make a Budget. Develop a realistic budget and stick to it. ...
- Stop Purchasing Based on Impulse. ...
- Learn How To Manage Debt. ...
- Limit Debt. ...
- Control Monthly Expenses At Home. ...
- Identify Ways To Cut Expenses and Save Money. ...
- Pay Off Debts In Full. ...
- Keep Your Mortgage and Rental Payments Reasonable.
- Track your expenses & income for one month.
- Create the categories that fit your life.
- Set some short-term & long-term financial goals.
- Cut certain areas to make those goals possible.
- Adjust your budget accordingly over time.
- Make a list of your values. Write down what matters to you and then put your values in order.
- Set your goals.
- Determine your income. ...
- Determine your expenses. ...
- Create your budget. ...
- Pay yourself first! ...
- Be careful with credit cards. ...
- Check back periodically.
Follow the 50:30:20 rule – By spending 50% of your salary on your needs and 30% on your wants, you can make sure you're not spending too much on things you don't need – and also ensure that some income is set aside as savings. Needs would include expenses on rent, mortgage, utilities, groceries, clothes etc.