How to Take Control

Elderly parents typically don’t want their adult children taking control of their finances. And most adult children don’t relish the idea of taking control. Handling their own financial matters is challenging enough for those adult children. But the day might arrive when there is not much choice. As parents age, ­ensuring that their financial future is not threatened might require immediate intervention. Many people experience a decline in cognitive function starting in their 70s or 80s. They might seem perfectly sharp for much of the time, but their ability to manage their finances could be increasingly diminished. This causes them to make costly money mistakes and become more vulnerable to scams.

If no one steps in to help, the assets that parents spent a lifetime accumulating could be lost. Their adult children’s assets might be in jeopardy, too, if those children must provide ­financial support for their parents as a result. Here’s what adult children need to know…

Time It Right

If you wait until you notice the classic signs of financial problems, there’s a good chance that significant financial losses already will have occurred. Those signs include the parent cutting back sharply on activities that you know he/she enjoys…receipts pointing to reckless spending…past-due bills in the mail…and calls from collection agencies during your visits.

The time to act is when you notice the early signs of cognitive decline. These could include an increase in forgetfulness…repeating the same story to you several times during a series of visits or calls…and/or getting lost in places that the parent has been in many times before.

Raising the Topic

How you broach the subject of taking control of a parent’s finances can have a tremendous effect on how the parent reacts. Many resist even when help clearly is needed because they fear losing control of their lives as well as their finances…or because they worry that the adult child is after their money—cognitive decline can trigger paranoia.

It’s best to bring this up in a way that does not initially call the parent’s competence into question. For example, you could…

Say that you are thinking about setting up a power of attorney for yourself, then casually ask your parent if he/she has done so. (See below for more on power of attorney.) If the answer is yes, suggest that he let you or one of your siblings know where these documents are located. If the answer is no—or the parent doesn’t want to discuss it—explain why you are having these legal documents drawn up for your finances. Offer to arrange a meeting for your parent with your estate-planning attorney or with an elder-law attorney.

Ask the parent for guidance on a financial topic. If you are approaching retirement age, for example, your parent might have useful insights to share about Social Security or Medicare. Asking for advice helps balance the conversation so that the parent does not feel disrespected when you raise the possibility of participating in his finances. Rather than send the message, “You’re no longer capable,” it sends the message, “This entire family is working together for mutual benefit.”

Volunteer to help the parent with a specific financial chore that you know he does not enjoy. If the parent complains about filling out tax forms and/or paying bills, for example, say that you also hate these tasks but that they might be less onerous if you drop by to lend a hand. This seems more like a social activity than an attempt to take financial control, so it is a less jarring transition into your taking control. It also gives you a chance to examine elements of the parent’s financial situation to confirm whether you need to take control. You might go a step further and offer to set up online bill payment, which you then could manage.

Drafting Documents

If you find that a parent is experiencing cognitive decline, it is not enough to keep an informal eye on his finances. This might let you spot problems after they have occurred, but it is not an effective way to prevent costly missteps from happening. And if your parent later becomes fully incapacitated, you will not have a legal right to act on his behalf. Instead, establish one of the following…

Power of attorney is an estate-­planning document that names an adult child (or someone else) as the parent’s agent to act on his behalf in financial matters. These are inexpensive to set up—expect an attorney to charge $100 to $200 to create a power of attorney (each parent will need one if both are still alive). The parent must agree to sign this document while still legally competent.

Helpful: There are two types of powers of attorney—a durable power of attorney goes into effect as soon as it is signed…a springing power of attorney takes effect only if some designated event occurs, such as a physician ruling that the parent is incapacitated. Durable is the better option because it does not force the agent to jump through time-consuming hoops to take charge…and it protects the parent’s privacy. With a springing power of attorney, the parent’s mental state might become a matter of public record.

Living trust is an agreement that names someone to take control of the parent’s assets. Even though the parent often is named as the primary trustee and remains in full control as long as he is able, a “successor trustee,” who might be an adult child, is named to take over when the parent is deemed no longer capable, perhaps by a doctor.

Parents often prefer living trusts to powers of attorney because these trusts do not just provide a way for an adult child to take over the management of the parent’s financial affairs—they also allow assets in the trust to pass to heirs after the parent’s death without dealing with the potentially costly and public probate process.

Downside: These trusts grant the successor trustee power to manage only the assets that have been transferred into the trust, which leaves gaps. For example, a parent still could sign up for a new credit card and then mismanage it…or fail to pay important bills. Trusts are more expensive to set up than powers of attorney, too—anywhere from several hundred dollars to several thousand dollars—and must be updated when new assets are acquired.

Guardianship, known as a conservatorship in certain states, requires a court ruling that the parent is no longer competent to make his own financial (or health-care) decisions and appoints someone—potentially an adult child—to do so on his behalf. This arrangement is a last resort, appropriate only if the parent will not agree to the options above. It is time-consuming, unpleasant and expensive to establish and ­administer a guardianship, particularly if your parent disputes the need for guardianship in court. Expect to spend several thousand dollars or more on lawyers’ bills and court fees. But if it is necessary, do it.

Red Flags in Your Parent’s Finances

When you take control of your parent’s finances, monitor his/her mail, checkbook, credit card statements, bank statements and investment statements for…

• Bills that seem much steeper than they should be or that the parent cannot explain.

• Bills for services that your parent does not seem to have received or ­required.

• Bills that have been paid repeatedly. Disreputable service providers sometimes bill older customers multiple times to see if those customers will forget that they already paid.

Helpful: If problematic bills arrive in your parent’s mail regularly, consider having his mail forwarded to your address.

• Donations to charity that do not match your parent’s priorities or ­financial means. People experiencing cognitive decline sometimes give money to every nonprofit that ­approaches them.

• Excessive trading in brokerage ­accounts and/or inappropriately risky investments. Disreputable brokers sometimes “churn” older clients’ assets, buying and selling investments with great frequency to generate numerous commissions. Or they might invest older clients’ money in risky securities such as penny stocks.

Keep detailed records of every ­financial move you make and every dollar you spend on this parent’s behalf or from his accounts. A logbook is one way to do this. That way, if your parent, a sibling or anyone else ever questions your motives, you can prove that you always have acted in the parent’s best interests.