Credit Basics
A trusted family member or friend can be named as a "healthcare proxy" within the directive document. When this occurs, the document may be known as a durable power of attorney for healthcare. The individual named as proxy in the directive document gains the power to make healthcare decisions on behalf of the person creating the document.
Conservatorship: A conservatorship is a court arrangement allowing an individual (you or one of your family members) power over the financial affairs of your parents. It is only allowed to exist when your parents are judged no longer capable of managing their own affairs. Conservatorship works to safeguard your parents’ financial assets. The court appointed conservator is required to make regular reports to the court regarding expenditures. Special permission may be required before any major financial decisions are made on behalf of the conservatorized individual, including the purchase or sale of assets such as a house.
On the downside, conservatorship can be a time consuming, expensive and ineffective process as much as it is a well meaning and helpful one. The conservator of another person's assets must go before the court to gain permission for big decisions, an expensive lawyer is needed to draw up the papers, and there is always the possibility that the conservator will abuse his or her power over the managed financial assets. This is why it is important to talk with your aging parents regarding joint bank accounts before they become ill.
Durable Power of Attorney for Finance: The durable power of attorney for finance is a legal document that authorizes a person to have the legal authority to act on behalf of another person with specific regard to managing their finances. Should the person on whose behalf the document was created become incapacitated, the normally term-limited document powers remain in effect until the person recovers or dies (at which point the document becomes invalid and the person's will takes over).
The major reason to complete a durable power of attorney for finance is to insure that important payments can still be made in the event that a person becomes incapacitated. Without a durable power of attorney for finance in place, the court will decide when and how important bills (such as a child's tuition or mortgage payments) get paid. Arranging in advance to grant someone else the power to pay bills in this nature is thus a way of reducing family stress.
Like other legal documents, the durable power of attorney for finance can be created without the assistance of a lawyer, although this is not always a good idea. It must be notarized and witnessed before it becomes valid. The person creating the document can designate the scope of financial powers to be granted to the designated executor so as to limit that person's ability to mismanage the funds.
Durable Power of Attorney for Healthcare: Highly similar to the durable power of attorney for finance, the durable power of attorney for healthcare legally grants another person the ability to make healthcare decisions in the event that the person creating the document becomes incapacitated and unable to speak on their own behalf. This is an important method for making sure that personal wishes regarding medical care are honored. It is appropriate for all adults to create such a document.
Financial Considerations: In addition to legal considerations surrounding the nature of your parents’ assets and estate, there are also day-to-day financial considerations that need to be thought through to help ensure that your parents and other family members will continue to live as comfortably as possible.
Beneficiary Information: In addition to completing a will and applicable durable power of attorney documents, it is important to make sure that beneficiaries are appropriately named and up to date on financial assets, including retirement accounts (pensions, 401k accounts, etc.), life insurance plans and other assets. Such assets are not likely to be covered by a durable power of attorney, and it can be difficult, if not impossible, to change or arrange for disbursement of these assets upon someone’s death if beneficiary information is not up to date.
Medicare and Social Security: Aging people approaching retirement age (generally 65-68 years of age depending on year of birth) should file for Medicare and social security benefits. Generally, it makes sense to apply for such benefits between three and six months prior to retirement age to allow for necessary processing time. You should be certain that your parents have filed for these benefits.
Supplemental Insurance: There are problems with both Medicare and Social Security coverages. Medicare does not cover numerous services and expenses, and nobody knows if Social Security will even be a financial help in the future. For these reasons, it may be wise to explore the purchase of a long term care insurance policy, and/ or supplemental medical insurance policy. Long-term care plans and supplemental medical plans may help pay for needed care facilities and treatments that Medicare will not. However, most policies have a lifetime maximum benefit level and many have daily/monthly maximums as well. Also, there are set criteria that usually trigger coverage. Not all conditions or situations will result in benefits even though the insurances have been paid for in advance. Because such plans may have up front eligibility requirements, older parents who already have a preexisting condition may be denied coverage.
While the downsides to purchasing supplemental insurances do exist, they can prove to be valuable means of funding care and are thus worth exploring.
Trusts: A trust is a legal device into which your parents' assets can be contributed. Monies contributed into the trust are no longer the property of your parents, but instead now belong to the trust. The trust can be set up in various ways so as to pay out a small income to the elder during his or her lifetime, and then disburse the remainder of the assets to beneficiaries upon your parents’ death. The major benefit of setting up a trust is to shield assets that would otherwise have to be sold off to pay for care before government care benefits activate. In order for this smart process to work, however, the trust must be set up years before your parents require care. Trusts are complex and should only be created and managed by a knowledgeable lawyer. Consult with a lawyer who handles estate planning for further information on trusts.
Once the legal or financial documents have been created, keep them together in a safe but accessible location, such as a safe deposit box. The location of the documents should only be known to you and those you trust.
Taking the initiative to speak with your parents about their finances before their health deteriorates will, ultimately, protect them and their assets. You will be saving them, and the whole family, from the confusion, aggravation and embarrassment of confronting a financial situation that you are probably not prepared for. Think of it as a way to educate yourself, so when you become the aging parent you and your children will be prepared.
