Are you or a loved one planning ahead in case you need help managing your money in the future? Knowing your options will help you choose what works best for your situation.
A financial caregiver is someone you enlist to help manage your finances. For example, if you become ill, a caregiver can make sure you pay your bills on time, monitor your bank accounts, manage your investments, or file your taxes. Plan ahead and choose someone you trust before the need arises because life circumstances change as you get older.
The Centers for Disease Control and Prevention (CDC) indicate that 2 out of every 5 older adults have a disability, while the Alzheimer’s Association reports that 1 in 3 seniors dies of Alzheimer’s or another form of dementia.
A financial caregiver can help you protect your finances when you’re unable to handle your own affairs because of declining health or if you just need some extra support.
A financial caregiver can:
The relationship you have with your caregiver will likely evolve over time, but always remember: you are in control of your finances. Your money should always be kept separate from your caregiver’s money.
A financial caregiver should be someone you trust to carry out your wishes. Many people often rely on a family member or close friend; others rely on professional money managers. No matter who you choose, consider someone who is comfortable handling a lot of details and is efficient in meeting deadlines. You’ll want to identify someone who can communicate well with various groups of people, including both financial professionals and other family members. It’s best to have someone who is in good health, reliable, and can attend to your needs.
Enlisting a person who doesn’t know how to handle money, is in trouble with the law, or suffers from declining mental or physical health would not be an optimal choice.
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Consider formalizing your arrangement with your financial caregiver so your caregiver has the legal authority to make financial decisions on your behalf. A formal arrangement also mandates that your caregiver has a fiduciary duty, or an obligation to serve in your best interest.
Options that may be applicable to your situation include:
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A Power of Attorney (POA) is a legal document that authorizes someone you appoint to act on your behalf. That appointee, known as your agent or “attorney-in-fact,” has a fiduciary duty to act in your best interest.
There are two main types of POAs. A financial POA allows your agent to handle your financial and legal affairs, such as manage investment accounts, file taxes, sign checks, and conduct real estate transactions. A health care POA, which is sometimes referred to as a ‘health care proxy,” gives your agent the authority to make medical decisions on your behalf. You may choose to have the same person serve as both your financial and medical POA or you may decide to have a different person for each role, depending on your situation.
Both are helpful tools in planning for future scenarios, particularly for older adults who may be concerned about potential cognitive challenges like dementia or other health-related issues. However, anyone age 18 and older may create a POA.
The authority you provide may be limited to specific situations or more general in its application. It can be temporary or permanent, depending on how you set up the POA. All POAs end when you, as the grantor, dies.
It’s important to choose your agent carefully, as there are risks involved. With a POA, your agent may be able to access your financial accounts and spend your money with the potential to liquidate your accounts.
When choosing an agent, consider the following questions:
Note that agents are only authorized to act as stipulated by the POA and what they can do is regulated by state law. For instance, agents cannot mix your assets with theirs or let someone else manage your affairs without your consent or a court’s approval. Agents who violate their fiduciary duty could be held liable under the law.
Contact an attorney to obtain a POA that meets your state’s requirements. Check the Indianapolis Bar Association.
It’s always a good idea to review your POA and keep it up to date.
You can always change your mind and cancel a POA. You can revoke it if your agent isn’t the right person for the role.
Financial caregivers play an important role in ensuring that their loved ones’ finances are managed wisely to maintain the best quality of life possible. Below are some best practices for financial caregivers.
To learn more, check out the Consumer Financial Protection Bureau’s guides on Managing Someone Else’s Money.
The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.