3 Big Challenges When Taking Over a Loved One’s Finances

Taking over a family member’s finances can be challenging in the best of circumstances. In the event of a loved one’s sudden illness or mental decline, you not only have to deal with myriad financial issues but with the emotional challenges as well. And before you can even start your day-to-day financial role, you might need to overcome a number of common hurdles such as obtaining the legal authority to act on behalf of your loved one and coordinating efforts with other family members.

To help you get started managing a loved one’s finances—and succeed over time—here are the most common issues you’ll likely discover, and how to tackle them successfully…

1. Your loved one hasn’t planned for not being able to handle his/her own finances.
Many people put off estate planning and end-of-life planning so it is possible that no one has been officially named to make financial decisions for them when they are no longer able to do so themselves. Even if your loved one appointed someone years ago, that person may no longer be able to fulfill the role.

In these cases, you’ll need to work with your loved one to obtain the legal authority to handle his finances. If your relative is completely incapacitated, you will have to go to court to petition for guardianship, a process that often involves a psychological evaluation to declare your loved one incompetent. Such extreme efforts are rare, though, since most elderly people—even those with memory problems—are able to execute basic estate-planning documents. Those papers include…

Durable power of attorney (POA). This is the most important document you will need in order to become your loved one’s financial caregiver. It will declare you the person’s “agent” and provide the legal authority for you to sign tax returns…write and deposit checks…sell assets such as stocks, bonds and real estate…and make other financial moves on the person’s behalf. It may cost roughly $150 to $250 to have an attorney draft a POA. This is money well-spent because an attorney can draft a POA document that addresses your relative’s specific needs. Example: If your loved one wants to transfer assets to a spouse and/or children while he is alive, you may need a gifting provision, which isn’t included in a standard POA.

In many cases, a parent may decide to name two or more adult children to share power of attorney. If multiple siblings are serving as agents, consider writing the POA to specify that each of you can act independently. If not, all agents will have to sign every check, which may be tricky if you and your siblings live far apart. Keep in mind that rules governing POAs vary from state to state.

Caution: Keep your own financial accounts separate from the loved one’s accounts so that no family member or other person can accuse you of misusing that person’s money. For instance, your loved one’s Social Security checks and other income should be deposited directly into his checking account, not yours, even though you have control of that checking account. Keep meticulous records of all transactions and bills paid to answer any potential questions that arise.

Will. You might want to help your loved one create a will if he doesn’t have one or update an existing will that no longer serves its purpose well. If you help with a will, be careful that you don’t open yourself up to accusations that illness or frailty made the incapacitated person susceptible to your “undue influence” in shaping the will in your favor. Example: If you isolate the person from friends and family members and what he chooses to leave you is drastically increased in the will, that might make you more vulnerable to such accusations.

Health-care POA. If you are making financial decisions for your loved one, you also may end up being the person to make health-care decisions for him. To do so, you’ll need to set up a separate health-care POA with your loved one’s attorney and a living will, which directs doctors about end-of-life medical care.

2. Your family member’s finances are disorganized.
Ideally, your loved one would have meticulously organized files making it easy to find all the financial information you need…or he would be able to tell you about various accounts and where to find records. Often, though, financial agents have to do some detective work, which can include looking through files, sifting through mail and even going through closets or an attic. You want to obtain a clear picture of your loved one’s income, assets and insurance. This includes identifying…

• All bank and brokerage accounts
• Social Security payment information
• Retirement benefits statements for pensions and retirement accounts such as 401(k)s and IRAs
• Copies of your loved one’s insurance policies including, potentially, health, life, disability, long-term care, auto and homeowner’s policies.

If you aren’t sure that your search has ­uncovered every bank and brokerage account, look at your relative’s tax return to review the interest and capital gains reported to the IRS. You can call your loved one’s former employer to find out whether he should be receiving a pension or, if the employer no longer exists, contact the Pension Benefit Guaranty Corporation for help finding a lost pension.

Next, examine your loved one’s expenses to create a household budget. You’ll need to gather your loved one’s monthly bills and receipts for such things as medical care, credit cards and other basic living expenses such as food and utilities. If your loved one hasn’t saved past bills, your POA provides you the authority to call local utilities and other creditors to get information.

Helpful: To make sure that your loved one is taking advantage of all federal, state and private benefit programs he qualifies for, ranging from income assistance and tax relief to utility payments and help with transportation, go to BenefitsCheckUp.org, a free service of the National Council on Aging.

You also can check for assets that he may have abandoned, such as old bank accounts, pension benefits and insurance payouts. Most states maintain a database of such assets—to find your state’s, search online for “unclaimed property” and your state’s name.

3. You need special designations to deal with Social Security and veterans benefits.
A POA won’t help you if you need to manage your relative’s Social Security payments and provide information to the Social Security Administration. Instead, you need a “representative payee” designation. To get this, you must complete Form SSA-11 and apply in person at your nearest SSA office.

Similarly, to manage your relative’s veterans benefits, you must apply to be a “VA fiduciary.” To do so, submit a written request with your loved one’s name and VA file number (typically the same as his Social Security number without dashes) at your nearest regional VA office. The VA will contact you to assess your qualifications. This will include a credit-report review, a criminal background check and an interview, typically in person.

Helpful: Download the guide “Managing Someone Else’s Money: Help for Agents Under a Power of Attorney” from the Consumer Financial Protection Bureau’s website (ConsumerFinance.gov). It includes tips on avoiding financial scams and hiring an accountant, attorneys and other professionals to help your loved one.