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Less Power to Them
By Karen Hube, July & August 2006
Signing over control of your assets can be scary. Here’s what you need to know
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Hannah West's closest friend landed in the hospital recently after a small stroke left her hazy and hobbled. The outlook is reasonably good—medication and rehab should get her back on track. For Hannah, though, the episode sounded a warning, not about health but about money.
The Problem
While her friend has a husband who can tend to their finances, Hannah, who is 67, is a widow living alone. Who will manage her assets if she becomes impaired?
Her only child, Nina, lives nearby and assures her mother that, whatever happens, she'll be there to help. That comforts Hannah, up to a point. With a form called a health care power of attorney, Hannah has already deputized Nina to make decisions on medical treatment should she become incapacitated.
But money is another matter. Nina's own finances are a little shaky and, along with some debts, she has a husband who doesn't inspire much trust. Should Hannah let her daughter be her backstop?
"It can be tough to find the right person," says Sally Hurme, an attorney with AARP's financial-security team. "You're letting someone stick a hand in your pocket."
If you have no perfect candidate—and even when you seem to—there are safeguards you can build into any arrangement, Hurme says.
The Plan
Hannah needs what every adult should have: a document called a durable power of attorney, which says who can make the money decisions for you after a doctor concludes you can't handle your affairs.
Until she becomes her mother's agent, Nina has no inherent right to act on Hannah's behalf, even though she is the closest relative, notes Charles D. Fox IV, an attorney in Charlottesville, Virginia. If Hannah were to have a major stroke today, guardianship of her and her property might fall to a court to decide.
Many people try to get by without a durable power of attorney by giving a relative check-writing authority. But this isn't smart, says Hurme: "Even an honest relative could go bankrupt or get a divorce—and your money could end up in a settlement."
In naming Nina as her agent, Hannah can add provisions for monitoring her daughter's spending, such as a regular accounting submitted to Hannah's lawyer or financial adviser. She can also place limits on the size of the transactions Nina can make without their approval.
Any lawyer who prepares wills is equipped to draw up the papers. The independent attorneys in AARP's Legal Services Network will do the job for as little as $35 (for details, call 888-687-2277 or go to www.aarp.org/ families/legal_issues/lsn). Once the document is signed and notarized, give copies to your loved ones and financial institutions. "You want people watching," says Hurme, "so no one goes freewheeling with your money."
Karen Hube is a financial writer in Westport, Connecticut.
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