How powers of attorney can protect your parents' finances

By Peter Andrew

The last time my mother came home from hospital, age 82 years, we had one of those high-tech beds delivered. You know the ones: They have air mattresses that automatically inflate and deflate a bit to prevent bedsores, and electric motors that allow you to tilt the patient's head and feet. One day, I'd raised mom's head to give her a drink, and, as I reached for the bed's remote control button to return it to the horizontal, I said, "I'm just going to put your head back down again." Throughout my life, she and I had enjoyed sparring over our English usage, and her eyes flashed with delight as she crowed, "That's tautological! You don't need the 'back' and the 'again'."

She died five days later. I tell the story to illustrate that many, many seniors retain their mental acuity throughout their lives. However, the Alzheimer's Association says that 5 million people in this country age 65 or older currently have Alzheimer's, and that a new American is diagnosed with the condition every 68 seconds.

And that's just one condition. My dad didn't have Alzheimer's, but for most of his last few years he was incapable of making informed decisions. And even my mother, sharp as she was, slowly lost interest in her financial affairs as her physical illness took hold.

One of the hardest conversations you'll ever have

None of us knows for sure whether or when one of our loved ones may lose the capacity to manage their own money, so it makes sense to hope for the best while preparing for the worst. And the first of those preparations is a potentially difficult and sensitive conversation with your parent(s).

How that conversation goes, and how you should try to steer it, are likely to depend on the sort of relationship you have, the state of your parents' finances and the personalities of those involved. But, as a general rule, it's best to broach the subject while your mom and dad are still middle-aged or young seniors (age 55 to 70, say) and healthy. It's fairly easy to talk about an event that with luck is still decades away -- and may never happen. If that boat's sailed, and your parents are already older or showing symptoms of dementia or other illnesses, that conversation may be both more difficult and more urgent.

Preparing for the worst

Either way, what you're seeking is a flexible timetable that gives you (and/or your siblings) increasing access to -- and influence over -- your parents' finances. The steps, each of which should be implemented only when helpful, might include:

1. The opening of your parents' books, allowing you a general overview of their assets, investments and liabilities.
2. Your ongoing monitoring of all their financial transactions, allowing you to make sure they're not acting irresponsibly or being conned by an outsider. Your role here is to protect them, not your inheritance. It's their money, and -- providing they know what they're doing -- they're still entitled to spend it as they wish.
3. Your involvement in their strategic financial decisions, working directly with their financial advisers, estate planners, brokers and so on.
4. Your complete management of their finances. This should normally only occur when your parents are genuinely incapable of making their own financial decisions, and is only likely to happen easily if you have a durable power of attorney in place.

Durable powers of attorney

A durable power of attorney (PoA) is a document that allows any competent person (an "attorney-in-fact" -- you or a sibling, for instance) to legally act on another person's (your parent's) behalf. It must be signed and notarized while the person granting the power still has the legal capacity to do so. It is possible to restrict the powers granted by a PoA, but it would usually be a mistake to do so when one is intended to help someone who's lost the capacity to act on his or her own behalf. Whatever the PoA says, by law the person given the power must always act strictly in the interests of the person who granted it. There are heavy penalties (including, in extreme cases, jail) for those who don't.

Once signed and notarized, a PoA can lay dormant for years or decades until a named event (dementia, say, or an incapacitating illness) brings it into effect. And, if circumstances change while it's dormant, it can generally be revoked at any time.

If a person has lost capacity before a durable PoA is in place, a court may appoint a guardian or conservator, who has similar powers to an attorney-in-fact's. But that process can take a long time, and a court may appoint someone whom the incapacitated person would not want.

Advantages of PoAs

Both my parents had durable PoAs, and they proved enormously useful. My mom, for example, sold their home, which was in joint names, as my dad's attorney-in-fact. Without it, their move to live with my sister might have been delayed for crucial months, and caused real hardship. Later, when my mother was ill, her PoA allowed that sister to keep the household accounts in balance, and pay some urgent medical bills.

It's not easy to sign a PoA while you're fit and healthy. You might somehow feel you're signing away some of your autonomy, even though you know nothing can change until an event you've specified comes about. You might even think you're tempting fate. But the advantages, which may only become apparent when you're at your most vulnerable, are potentially enormous. Time for me to call my lawyer, I think.