Managing financial affairs for someone else
Learn how to assume a role as a financial caregiver and understand the legal implications involved.
Making financial decisions for someone else can feel like an overwhelming task. If this is a role you've had to assume, you aren't alone. It's not uncommon to help maintain a loved one's financial security by assuming responsibility for their finances. Furthering the need for trusted financial support is the high rate of elder scams and fraud schemes. Here's a look at how to manage someone else's finances and understand the potential implications associated with this role.
Have the conversation early
The best time to approach this topic is before your loved one gets sick or their mental state begins to deteriorate. Some of the first steps necessary to begin handling someone else's finances can only be done when the account holder is mentally competent. So, talk with your loved one about their financial priorities and make plans together, including creating a joint account or adding yourself to a convenience account. These options enable a trusted individual to make transactions on behalf of the primary account holder.
Make it official
While your loved one is still of sound mind, they will need to appoint someone to oversee their finances. This individual would assume a legal responsibility to make financial decisions on their behalf, and that responsibility needs to be laid out in a legal framework. A lawyer can help draft the documents necessary to make this an official relationship, which can generally assume one of three roles:
Power of attorney (POA)
Obtaining power of attorney ensures the power to make financial decisions on behalf of another individual. This legal document carries a fiduciary responsibility, which means the trusted individual must make all decisions in the best interest of the person signing over the authority.
Trustee
This role involves overseeing a loved one's trust and carrying a responsibility for its assets.
Court-appointed guardian
In the absence of a POA or named trustees, the court can appoint a guardian if it finds that someone can no longer manage their own finances.
Keep track of everything
As a fiduciary, you are obligated by law to keep detailed records and make decisions in the best interest of your loved one. If you are receiving payment as a caregiver, it's best to add another trusted family member or friend to the account who can pay you. This way you won't be paying yourself.
While assuming responsibility for a loved one's finances, such as power of attorney over a parent's finances, is never anyone's first choice, this act can help ensure your loved one's financial stability into old age. And when established early, it can prevent heartache down the road. Whatever path you and your loved one decide to take, make sure both of you are in agreement and fully understand all of the implications, requirements and responsibilities of the arrangement.
