It is important to be prepared for the responsibility of managing your elderly parents' financial affairs, because mistakes can have adverse consequences for both seniors and their families.
My parents appointed my brother and I as their substitute decision-makers for property in a legal document called a Continuing Power of Attorney, when they were both mentally competent. Our mother asked us to take over the financial reins after my father passed away, just two years later. Fortunately, David and I were able to draw upon our extensive business experience to handle the task. The following are some tips we learned that helped us avoid costly mistakes.
Gather financial information before it's too late.
Once a parent has asked for your help handling their financial affairs, learn their filing system and get as much information as soon as you can, before they possibly become incapacitated by physical illness or dementia. This includes information about banking and investment accounts, sources of income, employer, union or veterans' health benefits, income tax returns for the prior two years and current year receipts, insurance policies, and the contact information for any financial advisors.
Keep good records of financial transactions to avoid family and legal problems.
Your loved one's financial accounts and transactions should be kept completely separate from yours. In your role as a substitute-decision maker, you are legally obligated by regulations in Ontario (and likely most other provinces) to keep complete and documented records of all of your transactions, whether they involve the sale of your parents' house or paying their bills.
If you don't keep good records, other family members may question how a loved one's money was spent. A lack of trust or confidence could lead to litigation or lifelong family feuds.
Invest a parent's money conservatively or you may have to support them.
Managing a senior's investments can be more difficult than for a younger investor, because the value of securities can rise or fall dramatically in a short period of time. If $100,000 in capital assets are lost early in a senior's declining years they may not have the time to recover the funds to pay for all of their eldercare expenses.
Their money must, therefore, be conservatively invested. A 4 to 6 per cent return range is a high enough goal to set, because securities that promise a higher return usually come with a higher risk. Since seniors have a greater need for income and a lower tolerance for risk than younger people, investment objectives should focus on diversifying capital assets and choosing only income-producing investments that are fairly secure.
Shirley Roberts was the primary caregiver of her mother for seven years and is the author of Doris Inc.: A Business Approach to Caring for Your Elderly Parents.