Families’ labor of love

November 11, 2016

Providing care to an elderly loved one is a noble endeavor that should not be taken on without prior planning. Among the many considerations are: your finances, their finances, other family members’ finances, et al.

Let’s begin with your finances. How will the care giving effect you? If you have a job will you lose income while providing care to a loved one? How much will you lose? For how long will you lose it? Will you lose your job? These things must be carefully thought out before you take on the activity.

For example, if you are thinking of leaving your current job, it isn’t just the salary that is at stake. You must consider your benefits as well. Will you lose your healthcare and/or disability benefits and other benefits? If you do, how will you replace them? Also, what about your chances of reentering the workforce after the care giving job is done?

Now for the other side of the equation: How much do you know about your loved one’s financial life? Caring for a parent, grandparent or sibling may eventually mean making financial decisions on their behalf. So, you may have a learning curve ahead of you. Specifically, you may have to learn, if you don’t already know:

  • Where your loved one’s income comes from (SSI, pensions, investments, etc.).
  • Where wills, deeds and trust documents are located.
  • Who are the beneficiaries on various policies and accounts.
  • Who has advised your loved one about financial matters in the past (financial consultants, CPAs, insurance agents, etc.)
  • Assorted PIN numbers for accounts, and of course Social Security numbers

Next question: Is it time for a power of attorney (POA)? If a loved one has been diagnosed with Alzheimer’s or any form of disease which will eventually impair judgment, a power of attorney will likely be needed in the future. In fact, if you try to handle money matters for another person without a valid power of attorney, the financial institution involved could say to you, “We do not recognize your power of attorney. We only recognize our power of attorney.” So make sure your loved one signs their form in addition to the general power of attorney provided by a lawyer.

Now, there are powers of attorney and there are powers of attorney. Let me explain: A durable power of attorney lets you handle the financial matters of another person immediately. A springing power of attorney only lets you do this after a medical diagnosis confirms a person’s mental incompetence. You do not want to be put into a position to require proof from a doctor that your loved one is incompetent, because we live in a litigious society. Make sure that you have a durable power of attorney so that medical evidence is not required when you need the POA.

You want to obtain a power of attorney before your loved one is unable to make financial decisions. Many investment firms will only permit a second party access to an account owner’s invested assets if the original account owner signs a form allowing it. Copies of the durable power of attorney should be sent to any financial institution at which your parents have accounts or policies. Whoever becomes the agent should be given a certified copy of the power of attorney and be told where the original document is located.

The next question is: “Is it time for a conservatorship?” A conservatorship gives a guardian the control to manage the assets and financial affairs of a “protected” person. If a loved one becomes incapacitated, a conservator can assume control of some or all of the protected party’s income and assets, if a probate court allows it.

A conservatorship implies more vigilance than a power of attorney. With a power of attorney, there is no ongoing accountability to a court of law. (The same goes for a living trust.) There is little to prevent an attorney-in-fact from abusing or neglecting the protected person. On the other hand, a conservator must report an ongoing accounting to the probate court.

The next area to discuss is trusts. I have seen a lot of them created lately, usually for people who move to a state in which going through probate can be difficult and costly, which it is not here in the Garden State. That’s fine but don’t let the drafter put your IRAs into a trust because they will become taxable immediately. Instead, have them make the trust the beneficiary of the IRA.

Lastly, here are some useful URLs. Some good websites can help you connect to great resources: try the U.S. Administration on Aging’s Eldercare Locator (eldercare.gov), the National Council on Aging’s online benefits checklist service (benefitscheckup.org) and the National Association of Area Agencies on Aging (n4a.org).

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann is a financial professional with and securities offered through LPL Financial, member FINRA/SIPC.