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How to Help Loved Ones Manage Their Money

This post is a contributed post from USA.gov.  See their Financial Self-Defense Kit for advice on how to build financial confidence as well as safeguard your finances.

Managing your finances can be hard. Managing the finances of an older relative or friend can be even harder. You want to honor your loved one’s wishes and respect his or her boundaries, but at the same time you need to act in the person’s best interest. It can be hard to know where to begin or whom to trust. Not only are there legal obligations that come with this responsibility, but the added emotional stress of caring for an older family member or friend can feel overwhelming.

So let’s start with the basics: What is a power of attorney? What does it mean for you, and what should you look out for? Being informed, prepared, and alert will help make a difficult situation as comfortable as possible for all involved.

Be Informed: What Is a Power of Attorney?

A power of attorney is a written document in which one person gives legal authority to another to make decisions about his or her money or property. If you’ve been named to manage money or property for someone else under a power of attorney, you are the fiduciary. It doesn’t matter if you’re managing a small amount of money or a lot, or if you’re a family member or not—you’re now legally responsible for managing that money or property for the benefit of that person, who is known as the principal.

If you were chosen as fiduciary, the principal sees you as a trustworthy, honest, and responsible person. Preparing yourself with the necessary information will help you manage your responsibilities and will bring you, and everyone involved, peace of mind.

Be Prepared: Understanding Your Legal Duties

While a power of attorney can seem like a complex document, there are really just four major duties you have as fiduciary. Your legal responsibilities are to:

• Act only in the principal’s best interest.
• Manage money and property carefully.
• Keep your money and property separate from the principal’s.
• Keep good records.

Because you’re managing someone else’s money, your responsibility is to make decisions that are best for that person. This means managing the money carefully, using good judgment and common sense, and never mixing your assets with the other person’s.

Keeping true and complete records is important; incorrect or incomplete records can get you in trouble—not just with the principal, but also with the police and with government agencies, such as a city’s or state’s Adult Protective Services office. 

Be Alert: Protecting Your Loved One From Fraud

Financial exploitation has been called “the crime of the 21st century.” Fraudsters tend to go where the money is, and with over 50 million Americans age 62 and older, older adults are prime targets for financial exploitation.

As a fiduciary, you should know the signs of financial exploitation. Recognizing what to look for will help you protect both yourself and your loved one. Be wary if:

• You or your loved one thinks that money or property is missing.
• Your loved one shows sudden changes in spending and saving behavior.
• Your loved one puts names on bank accounts and property that can’t be explained.
• Your loved one fears a relative, a caregiver, or a friend.
• A relative shows controlling behavior toward you or your loved one.

Even if your loved one controls only some (or none) of his or her funds, he or she can still be exploited. If this person was exploited in the past, before you become involved, there still may be something you can do about it—you can, for example, alert banks and credit card companies or talk to an attorney about preventing future exploitation and recovering the property that was taken.

The truth is, we’re all at risk. Anyone with any money could be targeted by a fraudster at some point. But you can help protect your family and friends by recognizing how fraudsters operate and by reporting scams and suspicious sales pitches.

Check out the Financial Self-Defense Kit from the Federal Citizen Information Center at USA.gov to gather information and build the confidence you need to make smart decisions about your finances and those of the people you care about. The kit includes resources that will help you avoid scams, be an informed fiduciary, and plan for your financial future.

James Hendrickson

James is an internet entrepreneur, blogging junky, hunter and personal finance geek.  When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College.  He loves individual stocks, bonds and precious metals.