Tips and Traps regarding Senior Living and Finances

Living Our Values -- Leaving a Legacy

Friend-to-friend reflections.

Tips and Traps regarding Senior Living and Finances

Who will manage your finances (and your life) when you are not able to? Who will manage the finances of a family member or friend who may be losing capacity to make good decisions for themselves?

Here are four strategies, and potential traps:

1.     Joint ownership of property.  If there is a joint owner for each investment, real estate parcel and bank account, the joint owner may be able to manage everything and the property may pass at death with no probate or court intervention. Initial cost:  minimal.  Ongoing costs:  none.

Traps: Not every joint ownership provides for “right of survivorship.”  The person named as joint owner may use the property for their own benefit ignoring the intentions of the original owner.  Joint ownership usually overrides what is written in a will.  Joint ownership may mean different things depending on the specific language used to create it. What if the joint owner you counted on to manage your assets dies or becomes disabled before you? What if the joint owner experiences financial problems that become a claim against the joint property?  What if you change your mind?  It may be difficult or impossible to change the joint ownership status after it is set up. If your plan is for property to be managed through joint ownership arrangements, be sure you get excellent legal advice regarding the effects of your plan and the need for back-up plans.

2.    Powers of Attorney.  A power of attorney authorizes another person (your agent) to make decisions and execute documents for the person who signed the power of attorney.  It is an inexpensive way to empower a family member or friend to pay bills or manage investments.  Initial cost:  Little or no cost if done using free forms or up to several hundred dollars if done through an attorney.  Ongoing costs:  None unless the documents need to be re-written or updated due to changes in the law, change of conditions, or new legal issues.  It can be revised at any time if the person signing it remains competent.  Once the Power of Attorney has been signed, the document can be taken to banks and investment firms and made a part of the records of the account, so that there will be a smooth transition when it’s time to put it to use.

Traps: If not carefully drafted, too much or too little authority may be given. If the designated agent is not totally trustworthy or does not exercise good judgment in managing your affairs, serious harm can be done to you and your property. The use of an attorney is highly recommended to make sure the document fits the circumstances.  Some financial institutions may be reluctant to accept a power of attorney, since they will want to ensure no fraud is involved.  If the person designated as your agent dies or becomes unable to serve, a back-up may be necessary.  An attorney can help make sure proper steps are taken to designate a back-up agent. If circumstances necessitate changes in the language of the power of attorney, the person executing it must be legally competent to validly sign a new document.  Unfortunately, if the power of attorney is not used until a disability has arisen, it may be too late to make changes.

3.    Living Trust.  This legal document should be prepared by an attorney. It allows a person to designate a trustee to manage all property placed in the trust, starting either at the time the document is executed or at a later time of disability.  Initial cost:  Over $1000, since it should be drawn up by an attorney and contain provisions suitable to your personal and family situation.  If all property is held in the Living Trust, probate can usually be avoided at the time of death.  One benefit of avoiding probate is keeping information about your property private.

Traps: The Living Trust should be accompanied by a will and power of attorney, which will be an additional expense.  All property must be transferred into the living trust to make it fully effective.  It can be expensive to update the document if circumstances change.  Changes will not be possible if the person creating the trust becomes incompetent.  As in the case of a power of attorney, a back-up trustee should be designated.

4.    Guardianship.  A guardianship is created through a court hearing with multiple parties present to advise the court whether or not to terminate a person’s legal right to manage their property and personal care. The new guardian may be a family member, a friend, or stranger.  Initial cost: Likely to be $1000 to many thousand dollars.  Attorneys are needed to help with this process.  Ongoing costs:  May be substantial since regular reports are due to the court and Legal Guardians are commonly paid.

Traps: Because a legal guardianship is cumbersome and costly to set up and maintain, most people prefer other financial management options.  Family or friends may disagree with decisions of the guardian, especially if the court has appointed a stranger.

Note:   There are separate issues involved with healthcare and death planning.  Look for other blog posts concerning those topics. In 2016 the WA Legislature adopted a new Uniform Power of Attorney Act, found in Chapter 11.125 of the Revised Code of Washington.  (http://app.leg.wa.gov/RCW/default.aspx?cite=11.125) This new law does not invalidate existing Powers of Attorney, but it does provide a good reason to review any current Powers of Attorney with a legal advisor to see if an update might be appropriate.  The new law clarifies the duties and responsibilities of the “agent” who is acting pursuant to the Power of Attorney and describes who can bring a court action if the agent appears to have acted improperly.

Resources:

The Handbook for Washington Seniors, published in Seattle by the non-profit Legal Voice, contains a wealth of information about planning documents, including Powers of Attorney.  The handbook may be viewed online and downloaded for free from the LegalVoice.org website or ordered in hardcopy for $20. A Spanish version is also available.  Each topic covered by the handbook includes an extensive list of additional resources. 

Washington Law Help  is an especially useful resource which includes Power of Attorney forms, washingtonlawhelp.org. Materials are available in both English and Spanish.  The website also contains information on many other legal topics of interest to seniors and their families.  

People’s Memorial Association, a Seattle-based non-profit organization, is a valuable resource for a variety of matters related to end-of-life planning. See:  peoplesmemorial.org for additional information.

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Carolyn Hayek