A Guide to Financial Guardianship for Incapacitated Loved Ones

Managing the finances of an incapacitated loved one can be a daunting responsibility. Whether due to age, illness, or disability, assuming control of someone else’s financial matters requires careful consideration, empathy, and a clear understanding of legal and ethical obligations. Family dynamics may make having these conversations difficult, but the sooner the discussion, the better!

Most importantly, everyone involved should understand who the decision-maker is or will be. The person taking on this role should understand that the commitment will require time, expertise, and a loving temperament to fulfill the role successfully. This person may be asked to act as an agent, a representative payee, a trustee, a fiduciary, or a court-appointed guardian or conservator. Whatever the role, clearly identify it in a legal document such as a Durable Power of Attorney to lock in their authority.

Here’s a guide to help navigate financial guardianship for an elderly or incapacitated loved one:

1. Assess the Situation

   Begin by understanding the extent of your loved one’s incapacity. Is it temporary or permanent? What are the specific areas where they need assistance?

2. Gather Documents

   1. Legal

      Determine if someone has already been legally appointed to manage their affairs. Documents such as a power of attorney, guardianship, or trust will dictate who has the authority to make financial decisions on their behalf. Once that role is accepted and documented, that person is legally required to act in the best interests of their loved one and without conflict of interest. Roles may include guardian, agent, trustee, or power of attorney, for example. If a person is appointed who then realizes they are unable to fulfill the role of decision-maker then there are steps to take to be removed from that role. The role of an appointed decision-maker may be contested in court by any who consider that person to be unfit for the role. The judge will make a determination about whether to remove them, and if removed, who should step into that role.

   2. Financial

      Collect and organize all relevant financial documents, including bank statements, investment portfolios, insurance policies, property, debt, bills, and other legal documents pertaining to their finances.

3. Create a budget

   Once you have an idea about who has authority over their finances and their financial documents, assess their income, expenses, and outstanding debts. Next, establish a budget that meets their financial needs. Create a comprehensive budget for essential costs, healthcare costs, an emergency fund, non-essential spending, and other needs.

4. Establish Authorization

   Institutions have requirements that must be met before the decision-maker can exert financial authority over the accounts of the one incapacitated. This process may involve filing a petition for guardianship through local jurisdictions or documenting your role as a trustee, agent or other. Once requirements are satisfied and guardianship or other role is granted, the authorized person can manage financial accounts and assets. This person should learn how to sign as an agent, trustee, or conservator to identify clearly their role over the account.

5. Exert Authority

   Attend to their financial matters promptly, including making sure their bills, mortgages, and other financial obligations are paid on time. Consider setting up automatic payments where feasible. Be attentive to their tax matters and deadlines for required minimum distributions if applicable.

6. Don’t Mingle Finances!

   Keep the incapacitated’s money and property separate from the appointed decision-maker’s money and property. Separating finances is a fundamental practice that aligns with legal requirements and ethical standards. Furthermore, it safeguards the beneficiary’s assets, promotes transparency, and ensures that the authorized guardian, or other type of decision-maker, fulfills their fiduciary duties in the best interest of the person under their care.

7. Streamline Accounts

   Simplifying their financial affairs and accounts can make managing them easier and more transparent. Create a comprehensive list of all financial accounts and assess their purposes, fees, and benefits. Next, consolidate similar accounts, consider closing unused or redundant ones, and strategically transfer balances when necessary. Opt for automatic payments for recurring costs and sign up for paperless statements. Then, update account information. Consolidate and streamline!

8. Invest Prudently

   Evaluate their investment portfolio for upcoming financial and medical needs. Does the person expect an increased need for health care, personal care, or other costs due to illness or disability? If so, will they have enough cash or liquid assets to cover those costs? Liquid investments are assets that are easy to convert to cash without penalties as needed. All investments involve some level of risk that should be reviewed periodically to ensure they present the right level of risk for the person at each stage of their life. These questions may have complex answers, so you may wish to discuss them with a financial professional. If the loved one already has a financial professional, then make them aware of how things are going so they can make recommendations appropriate to the client’s financial needs. Keep in mind that buying and selling investments on behalf of a loved one requires legal authority.

9. Protect Against Fraud

   Monitor their accounts regularly for suspicious activity and secure their sensitive information with strong, unique passwords and two-factor authentication. Exercise caution when sending emails and messages, and use secure Wi-Fi connections. Regularly update software and devices, inform your loved one about phone scams, use account alerts for immediate notifications, and limit the information shared on social media. All these practices will help protect their personal information from reaching the wrong hands.

10. Ask for Help!

    Many others have been down this road before. There are resources available for those who look. Seek legal and financial advice from professionals. Consult their doctor or healthcare provider to understand the scope of their incapacity and how it may affect financial decisions.

involve them in decisions to the extent they can be involved. It’s important to show respect for their wishes and preferences whenever possible. Act in the best interest of your loved one at all times while adhering to legal and ethical obligations. Acting in their best interest means making decisions prioritizing their well-being and avoiding conflicts of interest. For example, don’t make investment decisions that benefit the decision-maker at the expense of the elderly or incapacitated.

When you act as a financial decision-maker, it’s essential to maintain accurate records of all financial transactions and decisions. These records are for your own protection. Doing so helps with accountability and ensures transparency.

Be patient. There’s a learning curve with all of this. But do not procrastinate on important decisions. Although it’s hard to talk about finances and potential healthcare needs, it’s essential to take care of these matters for your own sake and your family’s sake.

If you begin to suspect elder abuse as you manage an elderly loved one’s financial matters, then locate the appropriate adult protective services agency by calling the Eldercare Locator at (800) 677-1116 or visiting eldercare.acl.gov. Elder financial abuse often violates laws and should be reported directly to the local police or sheriff.

In summary, managing the finances of an incapacitated loved one requires patience, empathy, and a strong sense of responsibility. It’s a role that demands diligence, communication, and sometimes professional help. Above all, the role of the appointed decision-maker, whether guardian, agent, trustee, or power of attorney, involves upholding the best interests of your loved one and ensuring their financial well-being while respecting their autonomy as much as possible. With these steps and considerations, you can navigate this challenging responsibility while honoring your loved one’s wishes and dignity.

If you ever feel the need to consult a professional, reach out to us at TriStar CPAs in Nashville, TN. We are here for you and your loved one and will help you navigate your financial role with empathy and care.