Managing Money, From Afar
By: Ellen Hoffman Source: AARP Bulletin Today Date Posted: June 2003
Maybe you get the news from a long-distance phone call or an e-mail: A friend or neighbor has spotted unpaid bills piling up on your mother's desk and wants you to know. Or maybe you find out indirectly: The local cable company notifies you it's cutting off your father's TV service.
Or maybe you find out the way Jon Ford did. Ford, 59, a financial planner in Cedar Falls, Iowa, knew trouble was brewing when he would drive 100 miles to Webster City, Iowa, for a "date" with his octogenarian mother, and she would not recall that they'd made plans.
But what really delivered the message to Ford was the "panicked phone call [I received] one Saturday morning because she thought she had run out of money," when in fact she had plenty of resources to pay her expenses.
At that point Ford did what he suspected for some time he would have to do: He assumed responsibility for his mother's finances.
In taking on this new role Ford joined a fast-growing corps of specialized caregivers. More and more 50-plus Americans find they must help out-of-town parents or other older relatives manage their money.
One reason for the trend is well-known: People are living longer. In 1960 about 52 percent of Americans in their 50s had one parent alive; by 2000 it was estimated that 27 percent would have both parents alive. In 1960 about 24 percent of people in their 60s had one parent alive; by 2000 that number had grown to 44 percent, according to one demographic study.
Older people are also more likely to need help today because late-life financial issues are more complicated than those their counterparts faced 20 years ago.
"Retirement finance now is so complicated that even folks with modest amounts of assets have a lot of complexity," says Maureen Mohyde, director of the corporate gerontology group at The Hartford, a financial services company based in Hartford, Conn. The retirement accounts that provide a lot of income for the elderly, such as 401(k)s and individual retirement accounts (IRAs), "all have different rules, and this is bewildering to most people," Mohyde says.
But if people in late life need help managing their money, doing something about it isn't easy. Recognizing there is a problem is the first difficulty, not easy when you're 300 or possibly even 3,000 miles away from your relative.
If you can, get to know your relative's neighbors or the family accountant or lawyer—anyone who can tip you off that your loved one may be experiencing difficulties and may need help with his or her finances.
After confirming your relative needs assistance, the truly hard part begins. You're likely to be in a delicate situation. Assuming financial responsibility for a relative in declining physical or mental health presents a psychological challenge as well as a financial one.
"One of the last things people want to give up, even if they need to, is control over their money," says Neal E. Cutler, a gerontologist who is dean for educational programs at the American Institute of Financial Gerontology, a recently created educational institution based in Deerfield Beach, Fla., and affiliated with Widener University in Chester, Pa. "This is something [the younger person] has to deal with in a very sensitive way."
Ideally, you should discuss financial issues with your relative before a crisis occurs. Point out that working together on these issues will benefit both of you—by providing you with the information you need to help, while relieving him or her of some chores that may have become burdensome. [See Getting Help with Long-Distance Money Management and Fundamental Facts about Long-Distance Money Management.]
Once the relative consents to your intervention, you'll find that managing someone else's money is a daunting task. It's complicated—it means receiving income on their behalf, paying bills, budgeting or even making investment decisions or withdrawals from an IRA or a 401(k).
For most people, there are two basic options: Take the responsibility on yourself, or hire a helper who lives in the relative's area. Either way, there's one thing you need to do first: Find out about all sources of your relative's income—Social Security, pensions, IRAs and other assets—money that can be used to pay the bills. This may require checking with the relative's accountant, lawyer, financial planner, broker or others who are familiar with their situation.
If you decide to help with the money management personally, you can streamline both the process of receiving income and paying expenses. Eileen Freiburger, a certified financial planner in El Segundo, Calif., points out that some of these options can be relatively painless if you are computer-savvy and can arrange to monitor accounts and pay bills online.
Specifically, Freiburger and other financial planners suggest:
- Make a budget based on the money available.
- Set up a joint checking account. Have copies of statements sent to you as well as to your relative, so you can monitor both deposits and check writing or,
- Open a joint cash management account (usually through financial service firms such as Charles Schwab or Merrill Lynch). Such accounts combine cash, stocks and other assets into one account with check-writing and credit card services. Have pensions, Social Security, IRA withdrawals and any other income deposited in the account, and arrange automatic payment for regular bills such as utilities or rent. (Expect to pay an annual maintenance fee—at Schwab it's $45 if the account value is less than $10,000, $30 for an account of $10,000 to $50,000 and no fee above $50,000.)
- Work with the Social Security Administration, the Veterans Affairs Department or your relative's pension plan to become a "representative payee" who is authorized to receive your relative's monthly benefits or to have the money deposited in a joint account.
- Get a joint debit or credit card to pay for expenses such as groceries, prescription drugs, clothing and the like, and read the statements when they arrive.
In some cases, especially if the relative is homebound or living in a nursing home or other care facility, you may find that the financial demands are simply too complex for you, or other family members, to handle alone.
Types of professionals who can help include accountants, financial planners, lawyers, money managers and geriatric care managers. They can do everything from drawing up a budget to preparing taxes, paying bills or managing investments for a long-distance relative.
But before giving financial responsibility to outsiders, verify their credentials. Then closely monitor their activities to prevent theft or mismanagement of the older person's money. In one case reported to the AARP Bulletin, a "trusted" family bookkeeper and caretaker allegedly embezzled some $70,000—including income from military pensions—from an elderly couple in Texas while their daughter was living in London.
Precautions to help ensure that the person you hire is trustworthy include:
- Ask trusted friends or business associates to recommend people.
- Check several references for any candidate you are considering.
- Look for someone with a professional credential that requires commitment to a code of ethics (geriatric care managers and daily money managers have such codes).
- Clarify the exact role that the helper will play. If the person you hire needs cash for expenses such as groceries, open a joint checking account with him or her, and keep a relatively small amount of money in it—just enough to cover the routine needs.
Joan Béjean of Rockville, Md., a daily money manager, further suggests that any reputable money manager should be willing to share authority with the relatives.
"In cases where I have been asked to serve as a power of attorney or a personal [financial] representative," she says, "I ask the client to put me on the account with another family member. I do not want to be the only one holding the reins of power."
Ellen Hoffman is a Washington-area freelance writer specializing in financial issues.
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