As our loved one’s age, we want to be able to ensure their needs are met, including managing their finances when they can’t. A common misconception is that a Power of Attorney or having their assets in a trust will enable us to pay their bills for them and manage important financial transactions before they pass. But we have found that if the legal stuff is not done properly, you may not be able to take care of your loved ones when they need your help the most.
I am not a legal professional. Please consult one before taking any action on the ideas presented below.
The Worst Case Scenario
My friend Joe is in a pickle. His widowed mother Jane slipped on an uneven sidewalk, got a severe concussion, needs a lot of help with activities of daily living, and is incapable of managing her own finances. Joe’s problem is that Jane didn’t enable anyone else to access her money and pay her bills while she was alive.
So, Jane’s money is frozen and Joe needs to pay her mounting bills out of his own pocket, money he doesn’t have.
You say to yourself “I’m good. I have a power of attorney for my Mom.” Your power of attorney may be useless for financial matters. Or “We’re covered. My Dad’s money is in a trust and I’m a beneficiary”. Not so fast, there still needs to be a competent trustee to handle things should your dad become incapacitated.
Sadly, although there are legions of medical professionals working on lessening the impact of dementia. it is a reality we all may face someday. Many of us are too familiar with the effects and the resulting inability to perform even simple tasks, let alone complex ones like financial management.
My friend Joe is at such a crossroads with his mother, Jane. Although Jane is able to do some things, she frequently forgets where she is going or why. Still, her medical bills and many other bills still need to be paid in a timely manner and Jane isn’t really up to it. While Joe is more than willing to help, he needs legal permission to do so during his mother’s lifetime.
There are two common legal documents that Joe can use so he can help her out: a Power of Attorney and a Trust. Let’s take a look at what they are each intended to do.
The Power of Attorney (POA) is a document that is supposed to enable one person to act legally on behalf of another. For this, Jane would fill in a form to give her POA to Joe and he could then use it to sign documents on her behalf. Such forms can be found on the net for free. However, be sure to read the cxxx section of this article before doing a POA.
A Trust is a legal entity, usually created by an attorney, on Jane’s behalf. Trusts can range from fairly straightforward to extremely complex, depending on Jane’s wishes for what happens to her estate when she passes. A Trustee is someone named in the trust document to execute the instructions of the trust. Instructions can include paying debts, distributing funds to heirs, and letting Uncle Jake continue to live in Jane’s house if he wants to, etc.
The idea is to create the Trust while Jane is still alive and able to sign documents for herself. She then moves most of her valuable assets (e.g. house, car, investment account, collection of figurines, etc.) into the Trust. But the trust doesn’t necessarily help before Jane passes.
Your Power of Attorney Is Useless
You would think a Power of Attorney would be enough. Not really. They can be helpful in many cases, but many financial providers may choose to not work with the POA holder since they could be liable if the action is later disputed.
Worse, many financial institutions, e.g. banks and brokerages, won’t recognize a POA unless it is done using their POA form and signed by Jane while she is still competent. So, even armed with a legal POA, they won’t let you do anything with her money, like transfer funds or pay bills.
Your Trustee Can’t Do Anything
Okay, so the POA may not be all it is cracked up to be, but you still have the funds in a trust, right? All you have to do is get the Trustee to pay the bills and move funds.
When Jane setup her trust, she was still of sound mind and body, so she made herself the sole trustee (that way she wouldn’t show favoritism between Joe and his brother Moe). But Jane is no longer with it, so she can’t execute anything. She had made Joe and Moe successor trustees, but they only have power after Jane passes.
The key here is that trust can usually be changed as long as Jane is competent. But remember, she has dementia and it is only going to get worse. Once it is too far along for her to represent herself, all of this can come to a grinding halt. The assets in the Trust are frozen because Jane is the only one allowed to do anything and she isn’t capable.
There May Be No Warning
If you get into this mess of having to cover Jane’s bills, your only real choice is to go to court and have Jane declared incompetent. Hearings could take months while the court gets a certification of her medical state and then looks through all of her documents to decide who will be in charge. Meanwhile, you foot the bills.
The worst part of this situation might be that it happened without warning. Jane was happy and capable just a few months ago. No one can predict when bad things will happen.
Actions to Take Now
Bear in mind that we are trying to cover the time while Jane is alive but unable to manage her finances. If you or your “Jane” doesn’t have a Trust, get the POA forms from Jane’s bank and brokerage firm and fill them out appropriately. This process might include adding someone competent to Jane’s accounts to ensure access to funds. Consider adding someone to Jane’s utility and other service provider accounts so you don’t need to argue with them.
If there is a Trust, periodically ensure there are at least two competent trustees named on the Trust and a way to name new Trustees if needed. If Jane were to name Joe as a co-trustee while Jane is still competent, Joe could then direct usage of funds in the Trust to get Jane’s bills paid. After all, most of us just want to ensure that our loved ones are properly cared for.
Next, periodically ensure that all significant assets are in the trust. It often happens that assets unintentionally wind up outside a Trust after it gets created. Then those assets are frozen unless the POA is in good shape.
What other pitfalls are you aware of?