When it comes to finances, it is wise to deal with the facts. Families often blissfully ignore the fundamental and inescapable fact that we all eventually die. The emotional impact of thinking about one’s own death or the death of a loved one, coupled with the extraordinary capacity for denial-driven complacency (it won’t happen to me, at least not for a long time), leads many families straight into the ugly world of financial calamity.
In this article, we will explain why you need to drag yourself out of that warm and cushy zone of denial and take legal steps to ensure peace of mind for yourself and your family irrespective of your age or financial status.
More specifically, we will discuss:
- Defining “Fiduciary”
- Defining “Trust”
- Powers of Attorney
- Spouses Also Need Legal or Fiduciary Documents
- The Difference Between a POA, a DPOA, a GPOA, and a Trust
- The DPOA and Financial Issues
- DPOA for Health Issues
- Aging Parents Assigning Fiduciary Responsibility
- Aging Parents Managing their Own Finances
- Fiduciary Responsibility and Alzheimer’s disease
- DPOA for Finances Following Death
- Paying for a Fiduciary Relationship
- Updating Legal Documents
- Fiduciary Relationships Across Sates
- Final Thoughts for Aging Parents
The legal definition of the word fiduciary reads something along these lines: A fiduciary relationship comprises an individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person (the agent) has an obligation to act for another’s (the client’s) benefit. A fiduciary relationship encompasses the idea of faith and confidence between client and agent and is generally established only when the confidence given by one person (the client) is actually accepted by the other person (the agent, who can also be a personal advisor). Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary agent in a fiduciary relationship include loyalty and reasonable care of the (client’s) assets within custody. All of the fiduciary trustee’s actions are performed for the advantage of the beneficiary.
The word trust appears frequently in this definition. We like to think that we can trust our family members when it comes to doing what is best for us under dire circumstances, and most of us can. For that reason, spouses and adult children are most commonly assigned fiduciary trustees or Powers of Attorney to manage their financial matters should they become incapacitated or otherwise unable to. People who do not have a close family, or who do not trust certain family members, are at great risk for losing control of their finances should they become incapacitated. That control could go to someone they don’t trust, or even to the state where they live, so assigning someone as their fiduciary POA is vital for them. However, having the foresight to take steps to obtain the legal documents necessary for a fiduciary relationship can save family members enormous grief and legal headaches.
People aren’t supposed to become incapacitated before they become very old, right? But take a few minutes to think about your reality. Do you or your friends know of anyone in your age group that has been in a tragic car accident and needed long-term hospitalization? Could that person have been in a coma for a significant amount of time? Who handled the bills during that time? Oops. That person should have had legal documents and a fiduciary relation with perhaps a personal advisor for this rare but possible scenario.
How about an asthma attack or an allergic reaction to a medication? Or, sadly, early onset Alzheimer’s disease (EOAD)? If you are keeping up with the news, you’ll know that dementia such as Alzheimer’s can happen even to younger people.
These are just a few situations where a younger person may need to have someone else (a fiduciary trustee) handle their finances. Most states are lenient enough that they will allow family members some latitude in emergencies, but it’s far easier on your family if you have set up a parent, a sibling, or a trusted friend, with solid legal documents, to handle things for you should that become necessary. So, in answer to the common idea that appointing someone as your fiduciary trustee or representative is only necessary if you are old is wrong. If you are reading this article you are likely old enough to benefit from appointing a Power of Attorney.
When a Middle-Aged Spouse Develops Alzheimer’s
While in many ways I am ‘ok’ financially, it has been said that with the early disability that my husband, Ron had to take at age 54, and my having to stop work to care for him, cost us more than a million and a half dollars from salaries, pensions, medical insurance etc. After Ron was diagnosed, I consulted at least three or four elder care lawyers and had to appoint guardians for our son. As the lawyer said – it’s not if Ron dies (I think they were ahead of my denial) it’s if YOU die, you have a dependent child acting as your trustee. People do need legal help, especially when they find that one spouse has a disabling disease and there are still dependent people in the family. And they are never too young to have bad things happen.
If every single bank account and all of your investments and property are in both of your names, you and your spouse, that is, you may not necessarily need to establish a fiduciary relationship between the two of you. But what about those separate credit cards or bank accounts? How about your spouse’s credit card bills? It can be far easier for a spouse if he or she has the proper legal documents to handle all of your affairs should you not be able to. Even if you and your spouse have every small thing in both of your names, having the proper documents for fiduciary management may go more smoothly if you’ve done the paper work.
Businesses sometimes need a Power of Attorney (POA) for a partner when the other partner is out of the country or for some other reason unavailable to complete certain business obligations during a particular time. Therefore, he or she assigns someone to act as POA to sign checks and complete other business tasks when the person is unavailable but is still cognitively able to take care of the issues if needed. That would be a limited power of attorney.
Families, and some businesses, are far better off with at DPOA. The “D” stands for “durable.” In this case, durable means that it is still active even if the person who assigned it becomes physically or cognitively incapable of taking care of his or her financial matters.
If you, as an adult child, only have a Power of Attorney, and your parent developed dementia, then that POA would be invalid since your parent was no longer mentally competent. That is why a Durable Power of Attorney is necessary. An estate or elder law attorney, or a certified financial counsellor, would know about the fine points of fiduciary relationships and help you understand the differences.
A GPOA means a general POA which, in essence, ought to let the assigned person handle not only financial issues but healthcare, as well. It’s far more common to have separate documents for health and financial issues during these complex times. This way, a person, i.e. the client, can have different people (trustees or agents) assigned to handle varied areas of their lives. Your attorney will tell you what the best approach is according to your state laws.
Trusts are another way of handling money, especially when there are special circumstances such as a disabled child or considerable assets. For this type of fiduciary work, a financial professional is needed, perhaps as trustee in a fiduciary relation. The trust will also need to be set up so that someone can administer it no matter what happens to the person who originates the work, i.e. “the client”.
There are some circumstances where a Durable Power of Attorney won’t suffice, and far too many people find this out too late. For Social Security, Medicare, Medicaid and Veteran’s benefits, you may need to have been assigned as the Representative Payee, which is a separate document. Again, this is why an attorney is important. States can vary, so see a respected attorney who knows your state laws, as well as federal requirements, so that you have everything that you need to act as a responsible fiduciary representative.
Representative Payee: We Found Out in Time
The one thing that I learned about POA (have both durable and healthcare POA for Mom) was that it still didn’t allow me to talk to Medicare about Mom’s billings, etc. I had to be her Representative Payee (or so I was told) – so we did go through that process while she was still able to cognitively answer the questions from Social Security Administration.
Your doctor’s office may have convinced you to fill out a health directive. This document assigns a Power of Attorney for health care to someone you trust, to become your trustee. Again, no matter what your age, it’s imperative that you follow through on this.
This document however is only for your health care. It has nothing to do with your finances or paying your bills. Every adult should have both documents drawn up with copies going to the people or trustees designated to act for them.
If at all possible, start discussing fiduciary responsibilities with your parents in a natural manner rather than waiting for a crisis. One approach that we suggest is that adult children mention, during a relaxed conversation with their parents, that they are going to see an attorney to get their legal documents drawn up. This is often enough of an incentive for the parents to say, “How about we go at the same time?” If they don’t say that, you may at least have perked their interest, perhaps for later action.
Another natural approach is to use the news as a springboard for a conversation. This can mean for example that a celebrity has announced that he or she has developed dementia, or it can mean that a close friend has just received a devastating diagnosis from the doctor. It’s all news and this type of news can open up the dialogue that can lead to POAs and a client/trustee relation.
Conversely, if your parents mention that they are thinking about care options as they age, or looking into whether or not they should set up some kind of trust for a grandchild, they are likely trying to open up a discussion with you. Don’t disappear into denial and complacency because you don’t want to think about your parents’ mortality. Help them out. Take up the conversational thread and ask them how they want to go about getting the legal documents done. Accompany them if that would help. Help them set up a relationship with either you or some other trusted trustee.
As people age, they generally slowdown in their ability to recall words or names quickly. That is normal. However, age increases the risk of dementia as well. Dementia is a general term for a decline in cognitive (mental) ability severe enough to interfere with daily life, with memory loss being an example. Notice that the definition says that the cognitive issues interfere with daily life. Once a person has been diagnosed with dementia of any type, with Alzheimer’s being the most common, this person is no longer legally able to assign someone else to take care of their financial responsibilities or to act as agent or trustee in any form or fashion, since they are deemed already incapacitated.
If you see that your dad’s memory is getting spotty, don’t attack him in a panic and make him feel like a dotty old fool. If you do that, you are creating a big problem when, perhaps, just a little one now exists. Approach him with respect and leave his dignity intact.
Again, using news stories can be a good idea. That takes away the personal aspect of the discussion. You could say to Dad, “Let’s watch those old DVDs of Glen Campbell that we enjoyed so much. It’s just been so sad to watch his decline from Alzheimer’s. I want to see him when he was at his peak.”
As you watch the video, you can discuss how sad it is that Campbell developed Alzheimer’s, slipping in the point that you imagine that he had everything in place well ahead of time so that his health and finances could be managed by other fiduciary trustees.
You may think that this is overkill or even sneaky. Just get to the point, right? Well, if you have a pending crisis, you might have to drag Dad to an attorney and have the attorney explain the facts of life to him.
However, if you have the choice to approach the issue with compassion and love, do so. One day, you, too, will be old – at least if you are fortunate. Then you, too, will pray that the younger generation will allow you to maintain some dignity.
You wouldn’t like the idea of going to court to prove your dad incompetent so that you can gain guardianship. So, why not take the necessary steps and obtain the legal documents while Dad is still legally competent? Obtaining guardianship is a long, expensive, emotionally draining process. Do you really want to go through this? Talking about these uncomfortable issues early and respectfully is by far the best route for everyone concerned.
This is one of the most common misunderstandings that people have about a DPOA. Once the person who assigned someone to handle his fiduciary responsibilities dies, the DPOA dies as well. The attorney can explain the next steps, but those steps will include the handling of the will. The executor of the will generally becomes the person to take over the fiduciary responsibilities and doing so means that different legal documents become active.
For very simplistic situations, a state appropriate Internet form is better than nothing. However, it’s best to do this right and go through an attorney. Even close siblings, a step-parent, or an old business partner, may decide to challenge a DPOA. Why not start with a solid legal document and have that to support your claim? It’s more solid than a notarized Internet document.
They should be looked over from time to time. It happens where a family member who was appointed DPOA dies or becomes mentally incompetent, or simply can’t be available any longer. This may not be common, but the papers should be looked over regularly to make certain that there are no changes necessary. If there are, then an update is in order.
Make certain that the documents are state specific. Seeing an estate attorney or an elder law attorney is one of your first assignments if different states are involved.
What a difference having everything in place meant!
Mom was in hospital, rehab and nursing care without hope of returning to her home of over 50 years. The financial POA allowed us to get her house sold to pay for her care. She was never told about it. Whenever she asked about going home, I told her the doctors wouldn’t let her go unless she could get herself to the bathroom and back to bed. She tried, God bless her, but it wasn’t to be. I was working with the care manager at the facility to get Mom enrolled for Medicaid when she was eligible because her money was running out. She passed before all her money was gone, but she had no debt to settle, no house to sell and we didn’t have to struggle with decisions about her final arrangements. Everyone’s situation is different and there is no one right way to do things. But learn all you can, do your best, and if paperwork isn’t your cup of tea, hire someone who you trust help to get it done. You’ve got enough to think about without stressing about filling out forms.
Neglecting to assign someone to take care of your fiduciary responsibilities can leave your family, who may already be struggling to digest your dire diagnosis, in a mess. Do the correct thing and set up the necessary POAs and fiduciary trust for everyone’s peace of mind. Jump ahead of your family members, who may already be uncomfortable with the whole process, and tell them that although you hadn’t planned on ever being mentally incapacitated, you wanted your financial and health issues taken care of in the best possible way. That way, everyone can carry on with the business of everyday living.