6 Things You'll Encounter When Taking Over a Loved One's Finances


Your parents took care of you for much of your life. It's not a comfortable moment when you realize that they need you to help care for them.

Ideally, when it's time to take the financial wheel for aging parents or other loved ones, you've already done some advanced planning. If not, the process may be more onerous. Here's what you need to know.

1. It's relatively easy if the person's assets are in a revocable trust

A decade ago, I received a letter from an elderly cousin informing me that she'd met with a lawyer to set up a revocable living trust, and that she wanted to name me the successor trustee. At the time, this was mumbo jumbo to me. But a couple of years ago, when my relative's health robbed her of the ability to conduct her own affairs, I was very grateful for her foresight.

Because my name was already on her accounts as successor trustee, it was relatively easy to have the banks promote me to "trustee," which gave me the legal power to manage nearly all her finances. All I needed to do was to provide the banks with a copy of the trust and a signed statement of incapacitation from her physician. Then I was able to set up online banking with my own passwords, giving me the power to pay her bills, deposit her checks, and renew her certificates of deposit as needed.

Having this trust also made settling her estate easier when my relative eventually passed away.

2. A financial power of attorney is helpful, too

Having your assets transferred to a trust is a long process. In most cases, a durable financial power of attorney is almost as helpful, and creating one is much quicker and easier. The person who may need your future help simply fills out a few pages of paperwork and signs it in front of a notary. Their bank may have the necessary forms on hand.

This power may be set up to kick in only if the account holder has become incapacitated, or can be for anytime use; for example, if your mother wants you to handle finances for her while she travels overseas once a year. It gives you the power to sign checks and tax returns, collect and deposit Social Security checks, sell real estate — pretty much everything. The main difference between the revocable trust and the power of attorney, in my experience, is that a power of attorney ends when the person dies, while a revocable trust continues after death.

Even if you already have a revocable living trust, it's good to also get a financial power of attorney, for several reasons. First, not everyone recognizes a living trust, but pretty much every bank employee is familiar with a POA. Second, your loved one may have forgotten to put some assets into a living trust, in which case the POA can be a backup means for you to handle those assets. Third, there are a few powers, like signing tax returns, that trustees don't have.

3. It can be hard to talk to Social Security on their behalf

Once I took over my relative's finances, I noticed that her Social Security payments seemed low for the number of years she had worked. I wanted to talk with the Social Security Administration about whether she was getting everything she was due, so I took my POA and trust documents to a local service center, took a number, and waited for my turn at the window.

No dice. The staff there informed me that the SSA doesn't recognize POAs, and that the only way I'd be able to get any information about her account was to apply to have them appoint me as a representative payee. Representative payees are given the authority to receive the Social Security payments belonging to a relative, friend, or other loved one, and use the money on the beneficiary's behalf.

Upon further examination, I decided my relative probably would not qualify for any further Social Security payments, so I didn't go through this rigmarole. If you need to manage a loved one's Social Security benefits, however, be aware that you'll need to apply for this designation.

4. If you need to sell investments, you may have some digging to do

If you sell stock on behalf of your loved one, that person may owe capital gains taxes. Figuring out how much they owe can be a real challenge if they've held the asset for many decades. My relative held some stocks in online brokerage accounts, which sounded like they would be easy to manage. Soon I realized that she'd transferred these stocks to the brokerage after holding them for years as stock certificates.

Some of the companies had gone through mergers and takeovers since she'd first invested. She probably had the paperwork showing when they'd originally been purchased somewhere — but her home contained many, many boxes of papers and I didn't know where to find the stock purchase records.

If your loved one is expected to live a long time and will need investments to be liquidated, you'll have to do the legwork to get at least your best estimate as to when stocks were purchased and at what price. But if the account owner is not likely to need those assets in their lifetime, I learned from a financial adviser it may be wise to just leave them be. Why? Because cost basis — the cost at which the IRS views you to have acquired the asset — is reset at death. If your loved one passes away, those stocks can be liquidated without worrying about what they originally cost.

5. You must prepare carefully for financing nursing home care

Before I began helping my loved one with her finances, I lived in a fantasy land where Medicaid or Medicare would pay for all U.S. citizens' nursing home care if needed. A meeting with an elder lawyer set me straight.

Medicaid will indeed pay for nursing home expenses — but only after nearly every other asset belonging to your loved one is gone. Once admitted to a nursing home, unless they purchased long-term care insurance, they'll be expected to pay market rates, which can be $3,600 to $7,600 a month or more. Once their money and assets run out, then Medicaid takes over.

There are ways to shield some assets from going to the nursing home, and it's wise for you and/or your loved one to consult a lawyer who specializes in Title XIX planning in your state. One surprising rule in most states is that the person needing care can't simply give all their money away and expect Medicaid to pay for the nursing home. In fact, if your mother gives you $10,000 a few years before going into a nursing home, and then runs out of money, you can actually be compelled to give back that $10,000 gift — and if you've already spent it, well, now you're $10,000 in debt.

Only a qualified attorney can walk you through all the rules for your state, but in general, what I learned was that it's important to start keeping records. Track money spent and gifts given as early as possible to prevent the system from trying to take back money already given away or spent. (See also: A Simple Guide to Planning For a Loved One's Long-Term Care)

6. Check recent statements carefully

Elderly or ailing people can be victimized by everything from outright scams to petty fees that they shouldn't have to pay. Once you have access to your loved one's accounts, look over the past year's worth of financial statements. When I did this, I found that my relative had been unwittingly signed up for some membership programs she never used, and was still being billed for a phone line that had been disconnected months before. I was able to get all these charges reversed with some persistent phone calls. On the same tack, be alert for any signs that your loved one has been the victim of identity theft or other fraud. (See also: What to Do When You Suspect a Scam)

Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.

Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.