Managing Money for Someone Else

planit.cuna.org / Published 2014 / by Karen Haywood Queen

planit-manage-moneyMaybe your dad just had a stroke and can no longer handle his money. Maybe your mom’s decline has been gradual, but you realize she’s not keeping up with her bills.

Managing your own finances is tricky enough. But when you become the financial agent handling a relative’s finances, you’re navigating a minefield of legal, financial, and relationship issues. Here’s what you need to know.

About 22 million people age 60 or older have designated someone to make decisions for them as an agent under a power of attorney (POA) document. Millions more have court-appointed guardians or other fiduciaries, according to the Consumer Financial Protection Bureau (CFPB), Washington, D.C.

“It’s a big responsibility,” says Naomi Karp, project manager for the CFPB’s guides to managing someone else’s money.

“When people are given legal authority to manage someone else’s money, it’s important for them to understand their legal duties. They’re standing as a bulwark between the people in their charge and people who want to rip off vulnerable older people.”

As a fiduciary, you must observe four basic rules:

  1. Act in the person’s best interest.
  2. Manage money and property carefully.
  3. Keep money and property separate from your own.
  4. Maintain good records.

There also may be issues related to Medicaid eligibility for nursing home care. At risk are the elderly person’s assets and your family relationships. Even if you’re only managing money on an unofficial basis, these are good guidelines to keep in mind.

Obtain power of attorney

If you don’t have a POA in place for your aging parents or relatives (or yourself), get one to avoid the need for court-appointed guardianship or conservatorship in the future.

As a court-appointed guardian or conservator, “You have to file these horrendous annual accountings that can take hundreds of hours,” says Evan Farr, of the Farr Law Firm in northern Virginia. You will have to file some documents with POA but it’s not nearly as time consuming.

But although you can get a POA document free or cheap online or from office supply stores, that upfront savings may cost you and your loved one in the long term. “Not all power of attorney (documents) are created equal,” Farr says. A good POA must have asset protection authority with the ability to make unlimited gifts, create trusts, take money out of trusts, and terminate trusts, he says.

Consult an eldercare attorney

Your next step is to consult an attorney. “Go to a really good eldercare lawyer in the same state as your parent—state laws vary quite a bit,” says Roxanne Nelson, of Bellingham, Wash., who shares POA responsibilities with her brother for their ailing mother in Florida. “It’s worth the investment. We paid $10,000 up front and it’s been invaluable.”

Protect assets

With the proper legal measures in place, the person in need of care can legally and ethically qualify for Medicaid-funded nursing home care without spending assets down to near zero. “Medicaid is the most complex area of law in existence,” Farr says. “It’s a minefield. If people don’t check every box properly, it can blow up and cause huge financial problems.”

An eldercare attorney will help you with what’s called Medicaid asset protection legally protecting your elderly parents’ assets from the high cost—for example $12,000 to $14,000 a month in northern Virginia—of nursing home care, enabling you to legally and ethically file for Medicaid on their behalf, says Farr, one of only about 450 certified eldercare attorneys in the country. In perspective, the cost of an attorney’s help is about the same as a month or two of nursing home care paid out of pocket.

If you have assets that you want to protect, it pays to plan ahead. Farr says the cost of hiring an eldercare attorney to shield assets five years or more from when the person needs nursing home care is $5,000 to $7,000, and 100% of assets can be protected.

The cost of hiring an eldercare attorney to shield assets in a crisis situation—at the time nursing home care is needed—is $12,000 to $25,000. In the case of a married couple, usually 100% of assets can be protected. For an individual, 40% to 70% of assets can be protected.

“Seventy percent of people are going to end up in long-term care at some point and they’re going to want to do Medicaid asset protection to shield their assets from the catastrophic expenses of nursing home care,” Farr says. “Most couples who don’t do Medicaid asset protection wind up going broke.”

Act in the person’s best interest

With a financial POA, you’re legally required to act in the person’s best interest—and that means putting your mom’s or dad’s best interests ahead of your own, Karp says. If you use your dad’s or mom’s money to buy a car to take him or her to doctor’s appointments but use the car more for your own errands, that’s putting your interests first, she says.

“Remember it’s not your money,” Karp says. “If you stray, you may go to jail.”

Manage money and property carefully

You have to avoid conflicts of interest—or even the appearance of a conflict—says Jan McCurdy, co-owner of Senior Care Management in Ewing, N.J. For example, if your son is mowing grandma’s yard for $75, get a written estimate from a local lawn care company. Then if someone—a jealous family member or judge—questions you, you can show the $200 estimate from the lawn care company.

“You have to account yearly to Social Security how that money was spent,” McCurdy says. “Adult children are always shocked to know they’re held to a fiduciary standard. It can be really devastating if you get accused of misusing someone else’s money.”

Keep money and property separate

No matter that you and your mom have always shared everything. Once you’re managing her finances, keep separate accounts.

“People put money into their [own] account just for ease of access and then they go to apply for Medicaid and realize this is big mess trying to figure out whose money is whose,” McCurdy says.

Maintain good records

You and your parents may have been flexible about taking turns to pay for a meal out, but those days are probably over, too. Whether you’re talking about a $50 meal or $5,000 to help with a grandson’s tuition, maintain a paper trail by keeping receipts, copies, or logs, for example. Karp says if your parent ends up seeking Medicaid eligibility for nursing home care, your state may “look back” to five years’ worth of records.

Avoid paying in cash. “We’re used to going to an ATM and doing business,” Karp says. “But then it’s going to be hard to account for what you did. It’s a good thing to have those records to show you did the right thing.”

Allow yourself time

Even with a good lawyer, dealing with these issues can take hours and hours, especially at first. “Be prepared,” Nelson warns. “When my mother broke her hip, my brother and I spent a week in Florida going to banks, filling out forms, talking to them in the nursing home. It was a lot of legwork. It was extremely time-consuming.”

Talk to the people at your parents’ credit union. They can help you streamline management of parents’ funds to comply with your fiduciary duties and keep things running smoothly at the same time.