How to Manage Someone Else’s Money in Later Life: A Complete Guide
Taking over a friend or family member’s finances can be a daunting task.
It’s often exhausting, both mentally and physically, to parse through the intricate web of someone else’s financial life. Navigating strained family dynamics can make it even harder.
With the right knowledge and resources, you can protect your loved one’s financial well-being and ease the burden on both of you.
In this guide, we’ll explore the legal and financial options available to family caregivers and provide practical tips to effectively manage someone else’s money.
Let’s get started.
6 Ways to Manage Someone Else’s Money
Every family dynamic is different, and so is every financial situation.
Figuring out the best way to manage a loved one’s finances isn’t as easy as picking an item off a menu.
It’s often a mix-and-match approach that evolves over time. That’s why it’s important to assess your specific situation and consider your loved one’s capacity to be involved. You should also consider how much time you can realistically commit to the day-to-day obligations of managing someone else’s money.
Joint accounts are a practical option for managing someone else’s money, especially when you need quick access to funds or when the person being cared for wants to maintain a level of independence.
Both people on the account have full legal control over the money. If one owner dies, the surviving owner maintains full ownership of the joint account and no money from the joint account becomes part of the deceased person’s estate.
Here are some scenarios where joint accounts might be a good idea.
- Daily expenses: Joint accounts are convenient for covering day-to-day expenses, such as groceries, bills and medical costs.
- Simplified management: Juggling multiple accounts can be a real headache for caregivers. Joint accounts help simplify things by keeping funds in a single, more manageable place.
Joint accounts can be useful, but it’s important to understand the potential risks.
- Personal financial issues: If the caregiver faces financial issues, such as bankruptcy or legal judgments, creditors may try to collect debts from the account, potentially jeopardizing the person’s assets.
- Commingling of funds: When funds from different sources are mixed in a joint account, it’s difficult to tell the difference between the caregiver’s funds and the other person’s money if both use the account. This commingling can easily create confusion over who owns what.
- Loss of control: The person being cared for may have concerns about losing control over their finances when opening a joint account. It’s essential for caregivers to address these concerns with open communication.
Convenience Account: An Alternative
A convenience account is a specific type of bank account designed for people who need assistance managing their money but who want to retain control over their funds.
In a convenience account, the primary account holder maintains full ownership and control over the funds, whereas in a joint account, ownership and control are shared between the account holders.
Another big difference? Money inside a convenience account stays with the account holder’s estate after death. (It doesn’t automatically pass to the other person named on the account.)
Not all states offer convenience accounts. However, it never hurts to speak with banks and ask what alternatives are available. Some banks, for example, offer what’s known as a joint fiduciary account, which allows the owner to add other signers to the account. When the owner dies, any money in the account goes to the owner’s estate.
2. Power of Attorney
Another option is establishing power of attorney.
Power of attorney allows someone to act as an agent on behalf of another person, making financial decisions and managing their affairs. It’s like having the official stamp of approval to make decisions and manage their finances if they can’t do it themselves.
Creating a power of attorney is easier than you might think. Many states offer free power of attorney forms online.
However, make sure the form you use is valid and complies with your state’s laws. Consider consulting with an attorney to make sure everything is in order.
Anyone can be named as a power of attorney. It could be you as the caregiver, a family member, a close friend or even a professional like an attorney or financial advisor. The person chosen as power of attorney is called an “agent” or “attorney-in-fact.”
Make sure the person you choose as the agent is someone you trust completely and who has your loved one’s best interests in mind.
3. Revocable Living Trust
One way to manage someone else’s money is through a revocable living trust.
You, the family caregiver, are granted the power to manage your loved one’s assets through a trust that they establish while he or she still has the capacity to make sound financial decisions.
A trustee is the person who makes decisions about the money or property held inside the trust. As a trustee, you become a fiduciary over your loved one’s assets, which means you must be even more careful with the trust’s money than you might be with your own.
The trustee has authority only over property directly held by the trust and only after your loved one loses the capacity to manage their assets.
As long as your family member can still make his or her own decisions, he or she can change or revoke the living trust at any time.
You can read more about revocable living trusts in this guide from the Consumer Financial Protection Bureau.
4. Guardianship or Conservatorship
A guardianship is a legal relationship where a court appoints a guardian to manage the financial affairs of an incapacitated person (known as a ward).
This process begins when a person is deemed unable to make decisions on their own by a court of law.
While guardianships (also known as conservatorships in some states) provide a safeguard for the ward’s finances, they involve direct court supervision. This means decisions made on behalf of the ward must be approved by the court, which can be time consuming and restrictive.
That’s why guardianships are usually only considered when no other reasonable alternatives are available.
5. Government Fiduciary
Government agencies like the Social Security Administration and the Department of Veterans Affairs can appoint fiduciaries to manage benefit payments issued by that agency.
These fiduciaries can be family members, friends or qualified organizations. They are authorized to use the benefit payments for the recipient’s care, but aren’t allowed to manage other assets without power of attorney, a trusteeship or a court appointment.
Representative payees are appointed to manage Social Security benefits, while VA fiduciaries handle veterans benefits.
You must keep records of how the funds are used and make them available for review by the agency. For veterans benefits, a background check and interviews are conducted.
It’s important to note that fiduciaries only have authority over the specific benefit checks issued by the agency. Even if you hold a power of attorney, trust or guardianship, you still need to be appointed as a representative payee or VA fiduciary to manage federal benefit payments.
Visit Social Security for more information on the representative payee role.
6. Professional Fiduciary
Professional fiduciaries are people or organizations that specialize in managing someone else’s money. They’re bound by legal and ethical standards to act in the best interests of their clients.
There are several types of professional fiduciaries, including certified financial planners and certified public accountants, as well as most money managers and financial advisors.
Hiring a professional fiduciary can be an excellent option if you’re unable to fulfill a financial caregiver role yourself or if you want to ensure unbiased financial decision-making.
A fiduciary can provide assistance in investment management, bill payment, tax preparation and estate planning, usually for a flat hourly fee.
You may want to name a professional fiduciary in a power of attorney agreement either as an agent or an appointee of the agent.
When drafting the agreement, make sure to clearly outline the fiduciary’s fees and responsibilities. It’s also beneficial to include a provision granting family members the legal authority to replace the fiduciary if they’re dissatisfied with their performance.
To find a suitable fiduciary, reach out to an elder law attorney who specializes in these matters.
You can find a local attorney by using the search feature on the National Elder Law Foundation website.
How Do You Start Managing Someone Else’s Money?
Becoming your loved one’s financial caregiver usually doesn’t happen overnight. For most families, it’s a gradual transition. You might start by helping your parent or grandparent pay bills, but eventually, you could become the primary contact person for banks, creditors and insurance companies.
As you navigate this new role — and the many responsibilities it involves — you might wonder: Where do I even start?
Here are some important things to keep in mind.
- Engage in open conversations about finances. Show genuine concern for your loved one’s well-being. Take the time to understand their financial situation inside out, including their stress points and concerns. Remember, discussing money matters can be tricky, especially between parents and children, but it’s essential for effective financial caregiving.
- Respect their desire for independence and involve them in the decision-making process. Ask how you can assist them, and start with small tasks like setting up automatic bill payments. Get permission before assuming other responsibilities, and respect their wishes as much as possible.
- Compile a detailed list of all expenses and debts, including utility bills, mortgage or rent payments, car payments and insurance. Leave no financial stone unturned.
- Document all sources of income, including regular and sporadic, Social Security, rental income, pensions and 401(k) retirement distributions.
- Create a budget. Use the expenses and income you figured out in the previous steps to create a budget.
- Maintain an inventory of all accounts, insurance policies, credit cards, website user IDs and passwords. Store this information in a secure location. Electronic password managers like LastPass and 1Password can also be helpful. Share the location and how to access the information with another caregiver if possible.
- Obtain legal authorization to act on behalf of the person you are caring for. Executing a durable power of attorney is the most official way to make decisions on someone else’s behalf. Make both physical and electronic copies of the power of attorney document, since many organizations require it before discussing someone else’s finances with you.
- Minimize risk if the person you’re caring for has cognitive issues. Consider managing a reloadable debit card on their behalf, obtaining a credit card with a low limit or acquiring an ATM card for a designated bank account. You can also explore apps like Carefull and EverSafe, which provide remote monitoring of financial transactions and notify authorized individuals about unpaid bills or unusual activity.
- Keep detailed records of your expenditures and any money spent on behalf of the person you’re caring for. These records will be helpful in addressing potential inquiries and when filing your own taxes.
- Don’t overlook tax obligations. Income taxes must be filed, real estate taxes paid and required minimum distributions taken from retirement accounts. Being proactive is crucial to avoiding penalties and complications on taxes in retirement.
Managing someone else’s money requires lots of organization and transparency. If you have a strained relationship with your family member, consider enlisting professional help. It may cost more, but your family member may be more open to the arrangement if a trusted third party gets involved.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on retirement, investing, taxes and insurance.