Time to take away the financial keys?

At a certain point in our life, the time comes to take away the financial keys from our aging parents.  

While everyone's situation is different—and it might not be a parent, but rather a spouse or yourself whose welfare is at stake—there are certain financial moves to make now before a health crisis happens to your family. 

1. Recognise the signs 

Weakened health and mental capability are often slow and gradual, and aging is not something we should be surprised by. It is one of the certain things we know about life, and the signs are relatively characteristic. Aging is not unique; it's just uniquely each family's experience. 

The more we normalise aging and life transitions, the more naturally a partnership around financial responsibilities can develop. Part of normalising is being aware to the signs and impact of aging. Aging is not a point-in-time event, which is why we can discuss and plan for it. 

2. Make time for regular conversations 

The best way to avoid financial mistakes, and potential financial abuse by outsiders, is to have regular conversations within the family that link to the signs of aging. You don’t want to ignore those important conversations, out of fear or sadness, until a physical or cognitive health crisis occurs. 

Many of these parent-child discussions don't start until the parent is past retirement age. Other triggers to having these conversations included the death of a spouse or family member, the deterioration of a loved one's health, or someone making a financial mistake. That said, there is no reason to wait until one of these events to have a family conversation. Time and transparency are two key factors that increase the odds of family unity around wealth preservation and transference. 

One common area that parents often don't want to share are private financial figures, because it feels very personal. However, you don't need those specifics to have meaningful conversations. In fact, you actually want to start with more conceptual conversations around wishes, guiding principles, and where financial accounts and documents are held. It's practice for later when a more detailed or harder conversation is necessary. 

The most difficult part, though, is typically the role reversal. Telling your parent what to do may be uncomfortable or not culturally normal for both of you. One way to kick off a conversation is to chat about how you've met with a lawyer to draft powers of attorney for financial and health situations so that someone, say, your spouse, can handle things if you're ever in a situation in which you can't make those choices yourself. Then ask your parents what protections they already have in place.  

Another option is that you can casually share that you've read recently about how important it is that kids have access to their parents’ personal finance information in case they ever need help managing their money. 

Yet another strategy is to suggest that you take over one of their financial tasks, such as preparing their taxes, or setting up automatic payments for regular bills to simplify cheque writing/ bank account management and be sure of timely payments. 

3. Find the documents 

If your parents are open to it, discuss where they keep important documents, such as the deed to their home, tax returns, wills, trusts, and powers of attorney. 

Get a list of their bank and investment accounts, insurance policies, and credit cards. Ask where the passcodes are stored, so you can access these accounts down the road. Find out who the beneficiaries are and ask whether they have a power of attorney or other documentation associated with a more comprehensive estate plan. Try to keep this conversational and relational, instead of like an investigation. Try and have the mindset that you are partnering for care into the future. Ask them to picture what it would be like for you to have to work through their affairs without them present. 

Additional information you'll eventually want to gather up includes contact information for their doctors, accountant, lawyer, mortgage company, financial planner, and brokerage/investment firm. If your parents are retired, you might ask about various income streams such as a pension (government and from previous employers) and personal retirement plan withdrawals.  

4. Establish a power of attorney 

In many countries, this document or equivalent is key to paying bills, managing investments, or making important financial decisions for someone other than yourself. If properly drafted and executed, a power of attorney can provide the authorisation for one person to handle all financial transactions on behalf of another—from signing cheques to selling a parent’s home if that becomes necessary.  

A critical reason to normalise the aging process is because you can't wait until someone doesn't have the mental ability to handle financial transactions before this document is signed. For a power of attorney to be valid, your parent must be competent when they sign it. 

Consider these three points related to establishing a power of attorney: 

1. Base the choice of power of attorney on whether the child has the skills, time, and location to do it well. It’s important to be clear with any other sibling(s) and keep the decision focused on what is in the best interest for your parent.  
   
   As a system of checks and balances, and to further transparency, consider naming two children or having different children fulfill different in the process. The sad reality is that elder financial abuse is usually committed by family members or close friends. If your parent or you and your siblings are concerned about a single person having all the power, put checks and balances in place. You might give one child power of attorney on investment accounts and name two children to have access to the bank accounts so they can see where those cheques are going. 
2. Many financial institutions and brokerages have their own forms that must be signed by the account holder before the institution will provide account authorisation to anyone other than the account holder. Sometimes, simply providing a copy of the power of attorney may not be sufficient. 
3. Generally, a power of attorney should comply with the laws of the place in which it is executed which, in most situations, is the place in which the person granting the power of attorney resides. If your parents split their time between more than one location or have assets located in more than one place, your attorney will also consider details of other laws in drafting the documents. Consider hiring a local lawyer who specialises in elder law to draft this document. If someone does become unable to manage their affairs without having assigned power of attorney, in many countries the court may step in to appoint a guardian. 

5. Revisit the will 

This is also the time to review, or write, a will to determine how someone’s assets will be divided when they are gone. It may need to be redrafted to reflect a person’s current wishes regarding how they want their assets distributed. Since the time a will was originally executed, personal changes and life events (e.g., death of a spouse, birth of grandchildren) may cause someone to rethink their original intentions.   

6. Sign a health care directive 

In many locations, a health care proxy, or a living will, allows a parent to give a child or any other trusted person the authority to make life-and-death medical decisions on the parent’s behalf when the parent cannot. Let your parents’ doctors know you have this document. Details will differ based on where you live but the concept should apply no matter what country you’re in.  

7. Store your documents in a safe place 

Make sure at least one family member knows where important documents, contact information, and account statements are kept. Important documents can be stored in a lawyer’s office or a bank safe-deposit box, or any safe place where they can be retrieved in an emergency. A secure virtual safe is another good option. 

Finally, this family conversation is not a one-time deal. Review your important health, financial, and estate planning documents at least annually.