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How to Establish Control Over Your Loved One's Finances

First, you have to have the conversation. It's not unusual for a care recipient to resist the idea that they need to share, or even give up, control of their finances. That's why you and your loved one must have an open and honest discussion of the realities of the situation. Together, you should come up with a plan that you both can agree on to ensure a smooth transition if and when the time comes that you need to step in.

A simple solution might be for your loved one to add you to bank accounts. In this case, though, the simple solution is not the best solution. Simply being a joint owner of an account may not give you the scope of authority to do what needs to be done. What happens if you need to gain access to funds outside of a bank account? What if you need to sell some of your loved one's assets to help pay for their care?

Being a joint owner of an account also may have unintended consequences:

  • If you have any unpaid debts, your creditors can take money from the account.
  • If you go through a divorce, the funds in the account may be treated as a marital asset that is split as part of the property settlement.

To manage your loved one's finances effectively, you need legal authority. In most cases, the legal document you need is a power of attorney for property.

If your loved one grants you power of attorney for property, you will have the legal authority to make decisions about their assets and to carry out transactions on their behalf. There are several types of powers of attorney for property. The types that are likely to serve you best are either a durable power of attorney or a springing power of attorney.

A durable power of attorney takes effect as soon as it is signed and remains in effect if the grantor becomes disabled. A springing power of attorney does not take effect until the grantor becomes disabled.

Please note that a power of attorney for property is different from a healthcare power of attorney, also called a healthcare directive or proxy. Your loved one needs one of these, too. If your loved one grants you healthcare power of attorney, you will be able to make decisions about their healthcare if they are not able to make those decisions on their own. This includes decisions about artificial life support. Sometimes, a healthcare power of attorney is part of a living will document.

You may be able to locate free forms to assign a power of attorney online or through state governments, bar associations, banks and hospitals. If possible, though, it is best to consult an attorney. If you go it alone, there's a risk you could end up with an invalid power of attorney or one that doesn't allow you to do what needs to be done.

If your loved one receives Social Security, Veterans Administration or Railroad Retirement benefits, you need to know that a power of attorney does not give you the authority to manage these federal benefits. Instead, you have to establish yourself as a representative payee. Social Security, for example, will carry out an investigation to determine if the beneficiary can manage finances on their own. If they determine that the beneficiary is unable to do so, they will appoint someone, usually a relative or friend, to serve as the representative payee. The representative payee then receives the benefit payments to use on the beneficiary's behalf.

There are some other, more complicated ways to gain legal control of a loved one's finances. For example, a revocable living trust may be appropriate in some situations, such as if your loved one has large assets. It may be necessary to have the court appoint a guardian if there are legal problems with the arrangements that are in place after someone is no longer competent to make financial decisions. The webinar goes into more detail about these alternatives.