Managing A Senior's Finances

Managing A Senior's Finances - Creating a Financial Plan

by Don Drake, Connelly Law Offices, Ltd. 7.12.24

ddrake@connellylaw.com

Attorney RJ Connelly III

"Many of us understand that managing banking and bill payments can become increasingly difficult as we age. However, unforeseen accidents or sudden illnesses can affect anyone at any age, leading to similar challenges," explained RJ Connelly III, a professional fiduciary and certified elder law attorney. "Incapacity could involve a family member who cannot drive themselves to the bank or has specific visual or hearing impairments. Without a proper plan, incapacity can put a loved one's daily financial activities and wealth preservation at risk."

There are several potential solutions to address this issue, including:

1. Enlisting a caregiver to handle these tasks.

2. Designating a power of attorney.

3. Establishing a Trust.

4. Engaging a professional fiduciary.

5. Utilizing a combination of these options to develop a comprehensive financial plan.

In today's discussion, we will explore some strategies for safeguarding the assets of a loved one who may have limited capacity due to a disability or illness. Let's get started.

Creating a Financial Plan

"Careful consideration and comprehensive planning are needed when moving forward with managing the finances of a loved one," said Attorney Connelly. "Preparing in advance to mitigate family conflict, especially in an unexpected illness or accident that impedes one's ability to manage financial matters independently, is the ideal."

"Open and proactive discussions among family members are crucial before delegating responsibilities," he continued. "In these situations, there exists a need for transparent conversations about health and financial oversight with trusted family members to minimize miscommunication, build trust, and avoid potential legal disputes that could strain family relationships. Seeking guidance from an impartial third party, such as a trusted clergy member, family therapist, or mediator, in cases where conflicts appear irresolvable."

Protecting Loved Ones from Creditors and Fraud

Attorney Connelly pointed out that while a joint checking account may appear to be a convenient way for a caregiver to manage financial tasks for their ward, it comes with significant risks.

"One common issue is the misuse of the account by the second party, leading to financial exploitation of the vulnerable individual," he pointed out. "In addition, both parties on the account can be held responsible for any unpaid debts, potentially burdening the loved one with the caregiver's financial liabilities. Further, the survivorship feature of joint accounts means that upon the death of either party, the remaining funds become the sole property of the surviving account holder, often leading to disputes and conflicts among family members and heirs."

Using a Convenience Account

Attorney Connelly said that nearly half of all states now allow the creation of convenience accounts, which enable a second account holder to conduct transactions solely for the benefit of the original account holder. These accounts are useful for managing bill payments and providing limited cash access. It's crucial to note that the secondary account holder does not have the authority to utilize the funds for personal gain or to inherit the account upon the primary account holder's passing.

"When acting as a financial steward for a loved one through a convenience account, it's important to keep detailed written records of all expenses paid from the account," said Attorney Connelly. "Additionally, including reasons for all checks in the memo field is recommended. Notably, the funds held in a convenience account are safeguarded against being borrowed or claimed as an asset. Neither the steward nor a third party can make purchases using the account. When selecting a second party for the account, a trusted family member is preferred over a paid primary caregiver."

In cases where comprehensive financial oversight of a loved one is necessary, other fiduciary categories can be explored to address the financial stewardship needs of aging or incapacitated individuals.

Power of Attorney (POA)

Attorney Connelly explained that a legal document, known as a durable financial power of attorney, is used to appoint an individual to manage financial matters on behalf of the principal if they cannot do so themselves. This legally designated individual, the agent or attorney-in-fact, steps in to make financial decisions if the principal becomes incapacitated. It's important to note that the principal must be mentally competent when granting this power of attorney.

By naming a financial power of attorney, families can avoid the need to file for guardianship in court if their loved one becomes unable to manage their affairs. Establishing guardianship can be complex, time-consuming, and costly, and it may lead to disagreements among family members. Therefore, a financial power of attorney can help minimize these potential challenges.

Trusts and Trustees

"When a loved one works with an elder law attorney to establish and transfer assets to a revocable living trust, they can appoint a trustee to oversee the management of the trust's assets if the grantor cannot make sound financial decisions in the future," stated Attorney Connelly. "The trustee's responsibilities include maintaining insurance policies, handling tax payments, making investment choices, and securing valuables in a safe deposit box. It's important to note that if the grantor is mentally capable, they can modify or revoke the trust."

Using A Professional Fiduciary

Considering professional money managers for loved ones with complex financial situations is an option. Not every family may have a suitable candidate to manage extensive or complicated assets, or the candidate might live too far away to provide appropriate oversight. In such cases, a professional fiduciary could be hired to oversee financial decisions.

Using a Government Fiduciary

Attorney Connelly explained, "Government-appointed fiduciaries are individuals who are specifically designated by a government agency, such as the Social Security Administration (SSA), the Department of Veterans Affairs (VA), or the Internal Revenue Service (IRS), to oversee and manage benefit payments or refunds issued by the respective agency. These fiduciaries can include spouses, family members, court-appointed or professional fiduciaries, or any other interested party, subject to approval by the government agency."

It's important to note that a Social Security appointee, also known as a representative payee, is empowered to assist with various agency benefits. In contrast, a VA appointee serves as a VA fiduciary and is responsible for managing VA benefits. Similarly, an IRS appointee, known as an IRS fiduciary, is authorized to manage IRS refund checks. However, their authority is limited to the specific benefits or refund checks issued by the corresponding agency, and they do not have the legal power to manage a loved one's property, medical matters, or financial affairs beyond that scope.

A Final Thought

"I can't emphasize enough the critical need for establishing a thorough financial oversight plan well before any potential incapacity," stated Attorney Connelly. "Without a well-defined financial strategy in place, an incapacitated individual may face the possibility of court-appointed guardianship. This could significantly limit their independence and dignity. Therefore, exploring less restrictive alternatives before turning to guardianship is essential. Carefully consider the implications of guardianship and exhaust all other options before pursuing this course of action. While guardianship may be justified in specific situations, it's important to recognize that the associated procedures can be lengthy and expensive, making it less than ideal for making prompt decisions on behalf of a loved one."

Please note that the information provided in this blog is not intended to and should not be construed as legal, financial, or medical advice. The content, materials, and information presented in this blog are solely for general informational purposes and may not be the most up-to-date information available regarding legal, financial, or medical matters. This blog may also contain links to other third-party websites that are included for the convenience of the reader or user. Please note that Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of such third-party sites. If you have any particular legal matters, financial concerns, or medical issues, we strongly advise you to consult your attorney, professional fiduciary advisor, or medical provider.