Taking care of someone else’s money-related matters — whether it’s as simple as paying a few bills or as formal as getting a Financial Power of Attorney — is called financial caregiving.
It is very common for caregivers to begin with taking care of simple personal matters, but transition into providing financial care over time. Because needs can be fluid and change quickly over time, it’s important to understand potential legal duties and liabilities ahead of time. CaringInfo provides resources for understanding financial caregiving and the pitfalls to avoid. Learn how to take on this important role while protecting yourself and your care recipient at the same time.
What is Financial Caregiving?
Financial caregiving doesn’t have a formal definition; it’s a term used to describe managing the personal finances of a seriously ill person, an elderly person or other adult who requires assistance – including paying bills, monitoring bank accounts, managing trusts, filing taxes, and taking on financial power of attorney.
More than 90% of caregivers act as financial caregivers, which may even include contributing their own money to cover costs in addition to managing the care recipient’s money. After two years of starting to receive general care, more than half of recipients need complete assistance managing their finances (source: Merrill Lynch).
Often, caregivers fall into taking on increasing responsibilities regarding money without having discussed finances with the person they are caring for, nor have they kept track of what they have spent on their behalf.
While having these types of conversations is understandably difficult, it’s important to begin discussing, documenting, and planning for this eventuality as soon as possible to prevent future problems.
This is especially critical if the person you’re caring for suffers from dementia or would otherwise not be considered competent to make decisions soon. The care recipient will need to sign legally binding documents while they are still considered competent.
While planning may feel overwhelming, there are many tools available to help you in the role of financial caregiver.
We’ll start by answering common, and important, questions about financial caregiving.
How Do I Get Started Managing Someone Else’s Finances?
Talk about finances with the person you are caring for and care about. Try to get a full picture of their financial situation, including potential areas of stress and concern. This can be difficult, particularly between parent and child.
Be sensitive to people’s need for independence. Consult with the person you are helping. Ask how you can help. Offer to start with small tasks such as paying bills. Ask for permission to take over responsibilities, if appropriate. Honor their wishes as much as possible in decisions and actions.
If appropriate, get input from other people. If there are other family members that want or need to be involved, it is better to include them sooner rather than later before misunderstandings occur. If the family cannot agree, in certain states there are specially trained elder care coordinators that can mediate.
Make a list of all expenses and debts including utilities, mortgage or rent payments, car payments, insurance, real estate taxes, and more.
Document all income including social security, pensions, retirement distributions, survivors’ benefits, royalties or other inflows, whether regular or sporadic.
Create a budget. A written budget should include all income and expenses, including both fixed and irregular ones. Make a plan for how to pay for fixed expenses (such as utilities, mortgage or rent payments, insurance, etc) plus food, transportation, some estimation of out-of-pocket medical costs and recreation. A calendar, either paper or electronic, can be useful to keep track of when payments are due.
Make an inventory of accounts, insurance policies, credit cards, website user ID’s and passwords. Keep the inventory somewhere safe and secure. A password-protected spreadsheet or a piece of paper in a secured location can work. There are commercial electronic password solutions available for a fee, such as LastPass and 1Password.
Get access to accounts. This may be as simple as getting your name added as a joint account holder or having the primary account holder give verbal agreement authorizing you to speak on their behalf. You may be tempted to use the account holder’s own login credentials to act on their behalf; however, this is not recommended since there may come a point where the account owner will no longer be able confirm they have given you permission to use their logins.
Get authorized to speak on behalf of your care recipient. The easiest way officially to make decisions on behalf of someone else is to execute a durable power of attorney, which is a legal document that appoints someone to act on someone else’s behalf. The forms are generally available on the web for free or a nominal fee. They require witnesses or notarization to be valid. Make paper and electronic copies of the power of attorney document, as many organizations will require a copy before they speak to you about someone else’s finances.
Simplify and automate. Set up auto-pay for regular bills. Close all but the most necessary of credit card accounts. Consolidate assets if appropriate.
If appropriate, limit risk. If the person you are caring for has cognitive problems, it may make sense to get them a reloadable debit card that you manage, a credit card with a low limit, or an ATM card for a small bank account. This allows them independence but limits risk. Commercially available apps, such as Carefull and EverSafe offer remote monitoring of financial transactions. They will alert authorized persons to unpaid bills and unusual activity for example.
Keep records of what you’ve spent money on and any money you spend on their behalf. The first will be helpful if others have questions and the second may be helpful when you file your own taxes.
Don’t forget about taxes. Income taxes will need to be filed, real estate taxes need to be paid, and required minimum distributions (RMDs) from retirement accounts will need to be made, even in the face of serious illness and impairment. Being proactive is very important and will save penalties and complications.
While this list of things to do to begin financial caregiving duties may seem overwhelming at first, the earlier you start the better. If the person you’re caring for is still competent, you may not need to do them all at once. It is a good idea, however, to review the list regularly. As a financial caregiver, you’ll want to make sure that no new information, accounts, or debt have crept up since you put a plan in place.
What Are the Legal Prerequisites for Becoming a Financial Caregiver?
Strictly speaking, financial caregiving does not need to be authorized via official paperwork. Many people look after someone else’s financial interests without any legal documents.
However, it is very useful to have formal documents such as a financial power of attorney before the person receiving care becomes less and less able to make decisions for themselves.
Many institutions will not even speak with anyone other than the account owner without written documentation. If no financial power of attorney has been executed before a person becomes unable to speak for themselves, either through illness or dementia, the caregiver will have to petition a court for authorization, such as via a power of attorney.
What is a Durable Power of Attorney?
There are two kinds of durable powers of attorney.
A durable financial power of attorney is a document specifying who is authorized to manage your financial affairs if you become incapacitated. This person is called an agent.
Separately, a durable healthcare power of attorney (which is often part of an advance directive), appoints someone (again, your agent) to make medical decisions on your behalf if you become incapacitated.
Visit our Power of Attorney page to learn more.
What Obligations or Liabilities Do Financial Caregivers Face?
Anyone who accepts the responsibilities of a caregiver must be aware of a number of potential liabilities and legal duties that accompany the role.
Separating Your Finances
The agent in a financial power of attorney has a legal and ethical responsibility to act in a “fiduciary” capacity, which means you are required to act in the best interest of your client or care recipient, as well as prevent any conflicts of interests.
A bigger difference between an informal and formal legal relationship is that the financial power of attorney also separates your personal finances from actions you take on behalf of your care recipient.
For example, as someone’s agent, you can make financial commitments on their behalf and they would be responsible for paying those costs out of their money; you will not be on the hook to pay for them personally.
If you don’t have the legal documents in place to separate your finances from the recipient, be cautious about signing any contracts or agreements for treatment or services on someone else’s behalf.
If you sign paperwork that asks you to be the “responsible” party (or guarantor or cosigner) AARP explains that you may be personally liable for the expense. Always read everything before you sign and have someone explain the paperwork if you don’t understand. You don’t want to be surprised with a big bill with your name on it a few months down the road.
Providing a Standard of Care
If you are in charge of an elderly person’s finances, you must use that money properly, purchasing necessary services for the benefit of the person to whom care is given. Just like you must provide a clean and safe environment, nutritious meals, clean bedding, and clothes as a caregiver, failure to purchase care (Source: Dr. Robert Stall’s Caregiver’s Handbook) is a form of abuse or neglect.
All states have passed elder abuse laws, though the specifics vary. Caregivers are bound by these laws in two ways: not to abuse the elder person (physically, mentally, or monetarily) and to report any incidents of abuse or suspected abuse. Contact your county mental health services for guidance.
Check out these additional resources about financial caregiving from trusted sources:
- Guides for Managing Someone Else’s Money – The Consumer Financial Protection Bureau (CFPB)
- What Caregivers Should Know About Managing a Loved One’s Money – AARP
Next, learn about how to deal with medical debt as a caregiver.
