As we grow older, there is a chance that we might be put in a fiduciary role for our loved ones. Just like caregiving, this role comes from a place of deep love for and trust from the incapacitated loved one and comes with great responsibility. Family dynamics can make playing this role extremely challenging, so to set yourself up for success, it’s important to have financial conversations sooner rather than later. If you find yourself and your family in this position with changing healthcare needs, everyone must know who the decision-maker is.
I often ask my senior clients, “Who do you think is responsible for financial decisions if you can’t make them?” This approach regularly gives me insights into a family’s ability to transition decision-making to a successor smoothly. And it usually gives me a better answer than asking, “Who is named on your power of attorney or trust?” because my clients often reflect on the family dynamics associated with these changes. People don’t necessarily associate the legal role with the moral decisions and time-consuming tasks that are also being asked.
Recent responses include:
- “My wife is named on the document, but really, it’s my two kids, and they don’t get along.”
- “I’m not sure; I haven’t even told my kids about where to look for information.”
- “I’m concerned about an in-law inappropriately influencing my child about money if they get control.”
Leaving anyone tasked with these critical decisions in the dark does not provide any benefits. Successor decision-makers not only need to be named in the appropriate legal documents to lock down their authority, but these new roles need to be supported with open communication, information and acceptance of authority. Consideration also needs to be made about whether the successor decision-maker has the time, expertise and temperament to play their role successfully.
Those of us who have stepped into these shoes learn quickly that the standard of care and the effort needed to “do right” by our loved ones is different than managing finances for ourselves. You might be acting as an agent in a power of attorney document, as a trustee under a revocable living trust, as a representative payee or veterans affairs fiduciary or as a court-appointed guardian or conservator.
Your duties are regulated by statute
Let’s remember that you are now a fiduciary for your loved one, meaning you have a legal obligation to act in that person’s best interest without conflict. You are required (by statute!) to manage money and property carefully, to keep money and property separate from your own and to keep good, clear records of what you are doing.
When I’m hired by family members serving in fiduciary capacities, my initial advice is always the same and mirrors the first thing I do as an adviser. First, read the power of attorney or trust document. Understand when it becomes effective and what it doesn’t cover. If you are considering paying yourself for your efforts, only do that if the document explicitly gives permission.
Second, organize the information about the finances you are responsible for. List financial accounts, property and debts, as well as identify income and expenses. When you begin to exert your authority over financial accounts, know that you must take specific steps at different institutions to get documents accepted so you can act. Learn how to sign as an agent, trustee or conservator specifically because every authorization you make must explicitly spell out your role.
Don’t mingle your money with your loved one’s
Third, make a point to keep all money and property separate from your own, even if it’s inconvenient. Commingled money can present significant problems even if your family arrived there with the best intentions.
Fourth, as far as the more human challenges of stepping into the shoes of a less able person you care about, here’s some support:
- Be patient with yourself, but know when you absolutely must act. For example, don’t be late on payments and do pay attention to tax and required minimum distribution (RMD) deadlines.
- Take small steps, and as early as appropriate.
- When facing an uncomfortable health situation, try not to procrastinate on decisions that must be made any more than necessary.
- Find a qualified guide for yourself, such as a professional or a trusted friend/family member who has served in a similar role.
- Take solace in knowing that many others have walked a similar path that you are on in your new fiduciary role, and help and resources are available if you make an effort to seek them out.
If you do your best and are careful, most of the time, things work out fine.
Financial adviser Tom West, CLU®, ChFC®, AIF®, founded Lifecare Affordability Plan (LCAP) to address a critical need for actionable planning that integrates finances, healthcare and senior housing. Tom has nearly 30 years of experience guiding families through financial and healthcare decisions. By bridging the gap between finance and healthcare, LCAP’s experienced team works with individuals and financial advisers to provide families with a financial strategy that meets changing healthcare needs while preserving the caregiver’s quality of life.
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