How Can I Legally Make Financial Decisions for Loved Ones?
As parents and grandparents age, adult children may find that they need to step in to assist with financial decisions. Should a loved one have dementia or any type of health issue that prevents them from making decisions for themselves, it’s important to be granted legal authority to act on their behalf. And it’s crucial to put these legal documents in place well before they are needed.
Q: What are the primary legal ways to assist loved ones?
A: You can choose to be a power of attorney for finances or become a joint account holder. Each requires different legal documents to be in place. It is extremely important that you understand the impact each method could have on the loved one’s estate plan and the disposition of financial assets after their death.
Q: What authority do I have if I am named as power of attorney?
A: If you are named as power of attorney, your loved one is giving you legal authority to act on their behalf as their agent. Keep in mind that while a power of attorney is accepted in all states, the rules and requirements differ from state to state.
The power may be limited to a particular activity, such as closing the sale of your loved one’s home or be more general in its application. The power may give you temporary or permanent authority to act on their behalf. The power may take effect immediately, or only in the case that your loved one is unable to act for themselves due to mental or physical disability.
Your parent, for example, could name you as power of attorney for financial matters, medical decisions or for both. However, if your parent is of sound mind, he or she still retains the legal authority to make his or her own decisions.
Q: What kinds of things can a power of attorney do?
A: As a valid power of attorney, you can sign checks for loved ones, pay expenses, make investment decisions as well as withdraw and deposit funds from their financial accounts. You can also change or create beneficiary designations for financial assets and perform many other financial transactions.
Keep in mind that your loved one’s assets belong to them, not you as the power of attorney. When acting on their behalf, you have a fiduciary duty to keep their assets separate from your own funds and to only distribute your loved one’s funds according to their best interests.
Q: As a power of attorney, what is my role after the death of a loved one?
A: Your authority to act as the agent under a power of attorney ends when your loved one dies. The people or entity who can make decisions concerning your loved one’s assets following his or her death is the executor of the estate or a trustee. This means you can’t use the power of attorney to access your loved one’s assets to pay for estate expenses, such as the funeral. The executor of your loved one’s estate is determined by his or her will or the laws of intestacy if your loved one died without a will. Because assets held by your loved one in his or her name are not considered your property, these assets will pass to the beneficiaries named in the will or according to the laws of intestacy following his or her death.
Q: What authority do I have versus a loved one if I am named as a joint owner?
A: Serving as a joint owner to help a loved one with financial affairs operates differently than acting as a power of attorney.
Your loved one would need to add you to their financial assets as a joint owner by completing forms with each respective financial institution where they have accounts. Once these forms are executed, your loved one and you are joint account owners for the account.
As joint owners, both of you have full access to the funds in the account and can make decisions concerning the account, such as signing checks, making deposits and withdrawals or other transactions. Most joint account owners can act individually or jointly. That means one joint account owner can complete transactions for an account without the input or prior approval of the other joint owner.
Q: As a joint owner, do I own assets equally with a loved one?
A: All joint owners are considered equal owners of the account, regardless of who contributed money to the account. For example, if an elderly parent adds you to a bank account as a joint owner, the funds in the account belong to both your parent and you, even if you never contribute money to the account. In addition, as joint owner, you could choose to use the funds in the joint account for personal needs.
Q: Is there an alternative to being added as a co-signer?
A: You can be added as a beneficiary to bank accounts or investment accounts, similar to being a beneficiary on a life insurance policy. The benefit is that those assets avoid probate because they’re paid directly by the bank to designated beneficiaries.
Another option is trust planning. Various trusts can be established to ensure that your loved one’s assets are distributed according to their wishes and those assets avoid going through a probate process.
Consult With Your Wealth Advisor
As you see your parents or grandparents begin to decline in health, work with your wealth advisor, or theirs, if they have one, on the best approach for assisting with finances. Our estate planning and trust services teams are in-house and can work alongside your advisor at Mariner Wealth Advisors to help ensure the appropriate legal documents are in place so that you can legally make decisions on behalf of a loved one.
The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information. Please also consider discussing these issues with your attorney.
Some services listed in this article are provided by affiliates of Mariner Wealth Advisors and are subject to additional fees.
Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.