First Steps to Managing an Elder's Finances

Taking total or partial control of an older relative's finances can be daunting. Here's where to start.

Figure Out What is Lacking and How Much Help is Needed

Some older people need someone to handle every aspect of their financial affairs, while others only need help in certain areas. If possible, pinpoint exactly where the difficulties lie and then provide help only where necessary. Here are some examples:

• An elder can handle paying monthly bills but can no longer make investment decisions. Provide help with investments only and allow the elder to manage everything else.
• An elder cannot write due to arthritic fingers. Set up an online automatic payment system for bills and help the elder write checks and sign documents.
• An elder has trouble managing spending. Give the elder a monthly allowance so they can do their own shopping and pay bills without losing their nest egg.

Take Stock

If your elder relative has lost track of documents, has failed to pay some bills, or does not know about certain income, investments, debts, or anything else related to their affairs, you'll have to take stock of the situation.

Start by identifying sources of income, bank accounts, and investments. These may include social security benefits, pension funds, stocks, bonds, mutual funds, other investment accounts, retirement funds, rental income, savings accounts, checking accounts, and certificates of deposit. Gather information about debts such as mortgage principal, credit card debt, and car loans, and estimate the elder's monthly and annual expenses.

If, after gathering this information you discover that the older person is in debt trouble or their expenses are greater than their income, you should take immediate action to get the situation under control. (To learn more about how to handle financial troubles, see Nolo's article Dealing With Debt: An Overview of Your Options.)

Protect Against Financial Scams

You and your older relative should become familiar with the many scams targeting the elderly. Look for warning signs that your older loved one has been the victim of elder financial abuse, and help them take measures to protect themselves in the future. (To learn about common scams targeting the elderly, see Nolo's article Elder Abuse: Financial Scams Against Seniors.)

Tools to Help With Financial Management

To help your older relative handle their finances, here are some tools you may want to consider:

Joint Accounts

The elder can add you or another relative to a checking account as a joint account holder. This makes you joint owner of the funds -- both you and your older relative can withdraw and deposit money and write checks. It allows the elder to maintain some independence and control, and allows you to keep an eye on things, pay bills, and handle some (but not all) financial affairs.

However, before you set up joint accounts, carefully consider the possible downsides:

• The new account holder has access to all of the funds in the account. If cousin Billy is the joint account holder, there's nothing stopping him from withdrawing all of the money and using it to remodel his house.
• Creditors with money judgments against the new joint account holder can take the money in the account to satisfy the judgment. (To learn more about when creditors can take money in a bank account, see Nolo's Q&A Can a creditor freeze my bank account?)

Single-Owner Accounts With an Authorized Signer

Your older relative can add you as an authorized signer to a checking or savings account, without making you a joint owner. This means you can write checks and withdraw and deposit funds. However, because you are not an owner of the account, all transactions must be made on behalf of the elder. The bank doesn't monitor this, but if cousin Billy absconds with the money, you at least have a legal claim against him. In addition, this means that your creditors cannot get at the money in the account.

Automatic Payments

You can ease the bill paying burden by helping your older relative set up electronic automatic payments or withdrawals for monthly bills. Most utility and telephone companies have automatic payment systems. This eliminates the need for the elder to write checks each month. However, you or the elder should still review the bills to ensure they are accurate.

Representative Payee for Social Security Benefits

The elder can designate you as their representative payee for social security benefits. A representative payee receives the social security benefit checks and is responsible for using the funds on behalf of the elder. Representative payees must periodically complete and file a form with the Social Security Administration (SSA) demonstrating how funds were used. To learn more about being a representative payee, visit the SSA's website at www.ssa.gov.

Financial Power of Attorney

With a financial power of attorney, the elder gives another person legal authority to act on their behalf. Usually the document gives the designated "agent" or "attorney-in-fact" broad powers to handle the elder's financial affairs. However, a power of attorney can also limit the agent's authority to only certain actions, such as paying monthly bills, preparing annual tax returns, or making investment decisions. In most states, if you make the power of attorney "durable," it remains in effect even if the elder becomes incapacitated -- usually a good idea. This is called a "durable power of attorney." To learn more about financial powers of attorney, see Nolo's article Durable Financial Power of Attorney: How It Works.

Getting Professional Help

Consider getting help from a professional if you don't have the time or expertise to assist your loved one with every aspect of their finances. Some professionals to contact include:

• Accountants. They can prepare tax returns or keep track of rental income and expenses.
• Financial advisors. They can advise you on the best way to invest your older relative's money.
• Daily money management programs (DMMs). These programs provide personal financial assistance to elders who can no longer handle certain aspects of money management. DMMs might pay bills for elders, prepare checks for signature, negotiate with creditors, or help the elder maintain financial records. To learn more about DMMs, see Nolo's article Daily Money Management Programs for Seniors.

See Nolo's article, Helping Seniors Manage Money and Finances, for tips on determining if your elderly relative needs help managing their finances. For help managing all aspects of your elderly relative's well-being, you may want to consult the following Nolo resources: Long-Term Care, by Joseph L. Matthews (Nolo), and Social Security, Medicare, and Government Pensions, by Joseph L. Matthews and Dorothy Matthews Berman (Nolo).