If you’re like me, with parents who are retired but still very self-sufficient, concerns about elder financial abuse or my Boomer parents’ inability to handle their own affairs is seemingly something that THEIR generation needs to worry about, not me. But as I reflect this Mother’s Day on how fortunate I am to still have both parents living (and quite robustly) into their mid-60’s, I realize that this issue is no longer something for Other People. I need to have these conversations with my mom and dad right now while they are still operating at their best. While I dread the day that things change, acting like it won’t happen won’t make it any easier when one or both of them do need additional help.
Living well and living longer
By the year 2050, it is estimated that 1 out of every 5 Americans will be over the age of 65, with people aged 85+ the fastest growing demographic in the nation. The good news is that people are living longer, even with chronic diseases that used to lead to early death. (92 percent of seniors are living with at least one chronic disease; 77 percent with two or more.)
The challenge is that this requires different planning than the traditional practice of simply having a power of attorney in place to help in case of incapacity and making sure the will is up-to-date to include the intended heirs. As this demographic continues to grow, so will instances of fraud and financial abuse of seniors. As approximately 3.5 million Baby Boomers enter retirement each year, the time to make sure your estate planning documents protect you or your parents from fraud and abuse is now. In fact, experts recommend making the bulk of these major financial decisions by age 50.
Beyond the basics
The big issue here is that when most estate plans are created, particularly with married couples, both spouses are of very sound mind and the natural inclination is simply to name each other as agents in case of incapacity. This is fine, but it’s important to make sure that there are contingent situations addressed as well. For example, what happens if they divorce? Between 1990 and 2010, the divorce rate doubled for people over the age of 50 and more than doubled for those over 65. Or alternatively, consider a case where neither spouse is incapacitated in terms of being unable to function in daily life, but both need assistance with things like paying bills due to declining writing abilities from Parkinson’s or arthritis.
Having a trusted person named in legal documents to help with those things ahead of time is the best way to make sure that finances are protected without having to give up complete control. So how do you make sure that you, your parents or other aging loved ones have the right plans in place before they’re needed? Here are some tips and things to consider.
You’re asking a lotFirst, it’s important to consider what’s really being asked of the person named as an agent. My grandparents named my CPA/CFO uncle as their power of attorney, correctly assuming he was best suited to handle financial affairs due to his profession. This worked out well, but was a major added burden to my uncle’s life for the years that my grandparents resided in a nursing home. Had they needed this type of assistance earlier in life when my cousins were still home keeping my uncle busy, he may not have been able to perform the duties with the same level of care that my grandpa paid when he was handling them. Think about the imposition, both when you’re selecting your own agent and in instances when you may be asked to serve and make sure the one you’re naming is ok with this.
For people who don’t have a spouse and/or capable children to name, there is an added challenge of identifying the best person. Our natural inclination is to think of relatives, but physical proximity is important and practically necessary. An attorney or accountant could be good back-ups, as long as the particular professionals named are younger. This is an instance where you actually don’t want one of your peers to be helping you.
It’s not just mental incapacity
Second, think outside of the typical “incapacity box” when creating documents. We tend to focus on extremes when we do our plans, but there’s a strong chance that the power of attorney will be needed before complete incapacity strikes. The agent may need to step in just to help sign checks or set up auto-bill paying for someone who can still make their own financial decisions, but just needs help carrying them out.
What you need to know ahead of time
Third, the best way to avoid causing financial havoc for yourself due to declining memory or by becoming a victim of fraud is to provide your agent with a baseline of what’s normal. A recent study found that more than one third of long-term care policy holders were letting their policies lapse at age 65, just about the time when they may need them. Part of the reason for this lapse is likely due to memory problems. The best way to ensure that you keep important policies in effect is to have a back-up person “checking your work” to spot potential lapses before it’s too late.
If you’re personally named as someone’s agent in a POA document, don’t wait until the power kicks in to learn how your loved one’s finances should be handled. One way to get a sense of what’s needed ahead of time is to suggest that your loved one have their accountant prepare a monthly write-up of the bills that were paid, just so you can have an historical record when you do take over. That way your loved one continues to manage his or her own affairs, but you and the accountant can keep an eye out for signs of abuse or decline through changes in the normal cash flow activity.
The best person to assist with putting the documents in place is an estate planning attorney. Just be sure before you sit down with that attorney that you’ve thought through some of the less obvious reasons you may need a power of attorney and have those conversations far in advance of when they may be needed. No one wants to think about the day that they or their loved ones need added assistance with life, but the day will come and when it does, everyone will be glad that proper plans were made in advance.