Financial Caregiver Solutions
If you have aging parents or other loved ones, you may find yourself in the position of having to assist them with managing their finances. This may include paying bills, handling deposits and investments, filing insurance claims and preparing taxes. Unfortunately, giving another person access to, or information about, personal finances can lead to unintended consequences or even financial exploitation if not handled properly.
Making informed choices now can allow you to concentrate on the emotional aspects of being a caregiver, while feeling at ease with the financial aspects.1
A standard joint account owner arrangement is commonly used to help. This is essentially the addition of another person as a joint owner on a checking account. However, this arrangement:
- Does not provide any protection from financial exploitation
- It increases the possibility of fraud and/or abuse
- Includes no legal obligation to look out for the best interests of the original account owner — no third party oversight or accountability is included
A person’s estate plan can also be affected if account titling is not handled properly. A standard joint account owner arrangement allows either party to withdraw all or a portion of the funds. This sounds convenient, however:
- Upon the death of one of the account owners, the surviving owner will automatically receive 100% of the account regardless of the decedent’s estate planning documents dictating otherwise
To provide protection for both the financial caregiver and care receiver, several different legal documents can be used to designate specific powers for the caregiver to exercise.
- In all cases, the legally appointed financial caregiver has an obligation to act in accordance with the directions as written and also in the best interest of the person for whom they are acting.
- When proper documents are not prepared in advance, it may be necessary to establish a Court supervised guardianship.
- In the guardianship process, the Court provides very detailed instructions and guidance for the use of the Ward’s assets.
Without the specific legal knowledge of the appropriate documents to ensure a smooth financial process, it can be difficult to know where to begin.
Here are some of the legal documents used by financial caregivers to manage or direct finances of a care receiver:
Power of Attorney (POA) for Property
A standard form POA for Property provides that the “Agent” (caregiver) must handle the assets of the “Principal” (care receiver) with their best interests first and foremost. The Agent must use care and prudence in administering the financial affairs of the Principal. The Agent can be held civilly liable for negligence in failing to do so.
Some of the routine duties expected of the Agent are:
- Paying bills
- Making investment decisions
- Preserving the value of property
- Preparing tax returns
- Selling Real Estate
An example of negligence: An Agent decides to sell stock to pay bills instead of using other liquid assets such as a money market. The cost basis of the stock is subsequently discovered to be very low, triggering a significant income tax liability for the principal that perhaps could have been avoided or delayed.
Power of Attorney (POA) for Healthcare
While not specifically able to direct the assets under the control of another person, the POA for Healthcare gives the Agent the power to make healthcare decisions on behalf of a Principal. Some of those decisions include housing and lifestyle choices. Those with the financial obligation to provide financial support for the care recipient must pay for the care as directed by the Healthcare Agent. These financial obligations must be paid from assets of the person receiving the care so there is a financial component to this care giving role. Disagreements may arise between those with financial power and those with healthcare power if they are not the same person.
Some routine decisions of the POA for Healthcare are:
- Residence Placement
- Surgical Procedures
- Lifestyle Enhancements
An example of POA for Healthcare power: An Agent directs that the Principal move from one rehabilitation facility to another if the Agent decides the care is insufficient — regardless of the opinion of others, including immediate family members.
A Trustee has responsibility only for those assets titled to a trust. A trust document will have specific language as to the responsibilities of the trustee. Typically, the trustee must provide financial support to the “Grantor” (care receiver) to the exclusion of others, but not always. Trustees have a fiduciary obligation to preserve and protect trust property, not only for the current beneficiaries, but also for those future beneficiaries named in the trust document. There can be significant liability if the Trustee fails to carry out all of their duties.
Some of the duties performed by a Trustee are:
- Care and management of all trust property
- Payments to the beneficiary in accordance with the trust document
- Accounting for all transactions to future beneficiaries
- Preparing the trust tax return
- Coordinating payments of caregivers for the beneficiary
An example of Trustee negligence: A Trustee who fails to maintain a home can be held personally liable to the beneficiaries for the loss of market value of the home due to neglect.
Guardian of the Estate
Without a valid and effective POA for Property, a court with jurisdiction may appoint a Guardian of the Estate to determine who may assist the “Ward” with his/her finances. There may also be a Guardian of the Person to make healthcare decisions, but they do not necessarily have to be the same person. Because a guardianship is supervised by a court, all financial decisions must be approved by the Court. There is little discretion on the part of the Guardian of the Estate.
Some of the regular responsibilities of the Guardian of the Estate are:
- Account for all financial and investment transactions to the Court via periodic reports and hearings
- Make payments as approved by the Court
- Prepare all Court reports
- Invest according to statutory guidelines
- Coordinate with the other caregivers for the care of the person
An example of Guardian negligence: A Guardian that uses the Ward’s funds for items not approved by the Court can be ordered by the Court to repay the guardianship account with his/her own funds.
First Midwest Wealth Management has solutions to help financial caregivers confidently manage their obligations. In addition, a dedicated First Midwest Wealth Management Officer can also provide resources for guardianship or elder care situations as well as answers to your financial planning questions.
Bill Pay Services
Providing payment of routine bills such as utilities and/or single pay bills, such as medical expenses, our bill pay services are unlike a typical automated debit arrangement from a checking account. This service is provided by our dedicated bill pay department where each bill is reviewed and monitored to ensure that each payment is made correctly, and our clients are alerted if there are any problems.
To help keep everyone informed, the financial caregiver can designate third parties to receive an account statement. Every transaction is accounted for and clearly listed on each statement. These statements are stored electronically for easy retrieval if necessary. By clearly and regularly communicating account activity, the financial caregiver reduces the potential of future problems.
First Midwest can help in the preparation of required personal tax documents if a third-party tax preparer is not available. Regardless of the actual tax return preparer, all transactions being processed in a single account greatly simply the completion of any personal taxes.
Hiring First Midwest Wealth Management to perform these tasks does not remove the control of the financial caregiver who is still in charge of the overall management of the property. The caregiver has only delegated these tasks and decisions; tasks for which they may not have time and decisions for which they may not have the expertise. The financial caregiver will then have more time and energy to focus on the physical and emotional needs of the care recipient.
Oversight and Resources
Each account is assigned to a Wealth Management Officer who, along with other professionals, is there to review account transactions and alert the proper parties if anything appears to be out of place. Each Wealth Management Officer is also available as a reference for the financial caregiver, since they regularly work with other organizations and professionals providing social services in the geographic areas served by First Midwest Wealth Management.
If you may be acting as a financial caregiver now or in the future, it is recommended you seek advice from a legal professional. Not knowing your responsibilities can lead to unintended consequences in the future.