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ALTERNATIVES TO GUARDIANSHIP

Your 82-year-old father is overwhelmed with financial documents and gets confused and frustrated when he sorts through them. He often accidentally overdraws his checking account or forgets to pay bills. His only income is Social Security, so he has to be careful with his money. You’re concerned he can’t manage his financial affairs any longer. Should you petition for guardianship?

Adult children often are faced with evidence that a parent is no longer keeping up with his or her personal finances or is making financial decisions that are inconsistent with past spending habits. Your immediate reaction should not be to petition a court to appoint a guardian.

A guardian or, in some states, a conservator, is a person appointed by a court to decide financial or personal matters for another person who is unable to manage his or her own affairs. A guardianship, or conservatorship, however, is a severe deprivation of a person’s right to make his or her own decisions. It should be considered only after other methods of protecting the person fail.

You can explore various legal options with your parent to help manage their assets. Your parent can choose from several simple legal documents designed to give you or someone else — an agent — the authority to manage some or all matters, usually financial, on their behalf.

A power of attorney lets your parent appoint a person they trust — an agent or attorney-in-fact — to help manage their finances. It’s fairly simple and inexpensive to create a power of attorney. Urge your parent to talk with a lawyer about the specific responsibilities that can be given to an agent. It may be reassuring for them to know that the agent they select is there to help them carry out their wishes.

A person who signs a power of attorney is called a principal. To sign a power of attorney, a person must be mentally competent. That means the principal must understand what he or she is doing and want to delegate certain decision-making responsibilities to someone else. Importantly, the agent can continue handling the principal’s finances if the principal becomes incompetent but only if the power of attorney specifically states that the principal wants the document to remain in effect after his or her incapacity. This crucial clause makes the power of attorney durable. An ordinary power of attorney becomes useless when the principal becomes mentally incapacitated.

A person also can designate when the durable power of attorney goes into effect. It can start when the document is signed or at some other time, say, when the principal becomes incapacitated. This latter type of power of attorney is called springing, because it springs into effect in the future. With a springing power of attorney, a principal must clearly define how others should determine that the springing event has occurred. All powers of attorney end when the principal dies, unless the document specifies an earlier date. The principal also can change or revoke a power of attorney at any time.

A power of attorney can be very specific or very general, depending on the principal’s wishes. He or she can authorize just one thing, like selling a car, or include everything that the principal could do him- or herself. Suggest that your parent get legal advice to help understand how to tailor the power of attorney to fit his or her wishes and needs.

There are several other protective tools. A person who receives income from Social Security may ask the Social Security Administration to appoint a representative payee to receive the monthly checks and use the money to pay his or her living expenses. The payee must open a separate bank account where the checks will be deposited electronically by Direct Deposit. The representative payee has no authority over any of the recipient’s other funds and must report to the Social Security Administration annually, showing how the money was spent to meet the beneficiary’s needs.

To have a representative payee appointed, you or your parent must fill out a form stating that your parent cannot manage the Social Security benefits. Include a letter from your parent’s doctor as confirmation. The Social Security Administration will accept recommendations concerning who should be appointed the payee, but is not required to follow them.

Your parent can establish a living trust — a legal arrangement by which he or she transfers ownership of assets to another person — the trustee. The trustee must manage the assets on behalf of the people designated as the trust’s beneficiaries. The same person can simultaneously serve as the creator of the trust (the grantor or settlor), the trustee and the beneficiary. However, older people who are not prepared to be the trustee can still be the beneficiary during their lifetime, and direct the trustee to distribute any remaining assets to secondary beneficiaries after their death.

More complex trusts also are available, but usually are not appropriate for people with limited assets. You and your parent should consult with a lawyer to evaluate whether a trust would be suitable and to determine the most appropriate type of trust.

When the alternatives discussed here and in "Daily Money Management Programs" (the seventh column in this series) have been exhausted, or if you know your parent is not capable of putting any plan into effect, you may need to consider a guardianship or conservatorship. Consult with an attorney to determine the appropriate course of action.

For More Information

Social Security: A Guide for Representative Payees, Social Security Pub. No. 05-10076. Call (800) 772-1213 to order.

American Association of Retired Persons
601 E Street, NW
Washington, DC 20049

AARP Estate Planning.

National Academy of Elder Law Attorneys
1604 North Country Club Road
Tucson, AZ 85716
(520) 881-4005; fax: (520) 325-7925

Prepared by the American Association of Retired Persons

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