As individuals get older, they sometimes lose the ability to make wise decisions regarding finances. In some cases, an adult child may need to have a tough conversation with a parent, explaining that the parent should no longer have control of his or her own finances. According to Fox Business, this conversation is often necessary but can be very difficult for a parent to comprehend.
Admittedly, parents are typically very angry when they hear that they will be losing control of their finances. Sometimes they respond with embarrassment and other times they can become fearful. Things can also get complicated if siblings are battling for control of the finances.
According to the National Endowment for Financial Education (NEFE) almost half of all Americans who are past the age of 85 will experience some form of dementia. Cognitive decline is a natural part of the aging process. As an individual's cognitive abilities begin to dwindle, he or she may forget to pay bills, or may start spending money recklessly or foolishly. Oftentimes, it is best to take over a parent's finances once you notice unpaid bills, disorganized cash, or any other number of signs of money frivolity.
There are a variety of different reasons that children should take control of their parent's finances when the adults get older. Primarily, it is important to take over a parent's finances to avoid debt. Sometimes older parents can tap into their savings account and eventually drive themselves into debt as they continue overspending. As a result, parents run the risk of losing their insurance coverage or of getting into trouble with creditors.
Older Americans are also more vulnerable to financial extortion, and may become the victims of money scams for the elderly. Scam artists and those who commit identity theft often target older Americans and convince them to give over money without any proof that the money will be used in a wise or helpful way. According to the National Endowment for Financial Education, 47% of seniors have a difficult time managing their bills.
Even if it is time to manage your parent's finances, you will want to go about this transition carefully. Just because a parent is having a difficult time covering financial responsibilities doesn't mean that you can simply step in. Parents need to make a durable power of attorney before children are able to manage financial accounts on their behalf. The durable power of attorney is only legally enforceable if the person who drafted it was in full control of his or her mental faculties at the time that he or she signed the papers. This means that the plan needs to be put in place before the parent is incapacitated.
The NEFE recently conducted a survey and discovered that 70% of all adults surveyed had major barriers that prevented them from discussing the issue of financial responsibility with their parents. Elderly individuals are often frightened that they will not be able to manage their own affairs, whereas children are worried to bring up a sensitive topic that could anger their loved ones.
All parents are encouraged to organize a durable power of attorney designating a child to take care of finances in the event of incapacitation. This is important, because in the new technological age much banking and many payments are done online. Without a durable power of attorney, children do not have the right to their parent's passwords and usernames for banking reasons.
Without a durable power of attorney, children also don't have the right to deal with a parent's bank or brokerage accounts. Privacy laws will prohibit the bank from discussing the parent's account with you no matter what you relationship is. You will instead have to go to court and obtain guardianship of your parents in order to get the information that you need. Contact a probate attorney today or an estate planning lawyer to discuss a durable power of attorney or options to take over a parent's financial affairs!