Your Role in Managing Someone Else’s Finances

Many of us are already managing a parent or other family member’s finances as their power of attorney agent, or we know we are up for the job when they are no longer able to do it themselves. In my role, I see a lot of Power of Attorney Agents do the best they can, but ultimately make A LOT more work for themselves. This article is a list of common mistakes I see and what you should be doing instead.

You must keep your funds separate from the principal’s funds

Please note:
The principal is the person you are acting as agent for, whether it’s mom or dad or someone else.

I know it’s so much easier to go to the grocery store and put everything on one credit card (plus you get the miles) and then reimburse yourself with a check. Sure, up front that might be easier. But if your family member ends up needing help paying for long term care or anyone questions what you’ve been doing as Agent, how easy do you think it’s going to be looking at that check from 4 years ago and trying to figure out what it was for?
The best practice is to write out a check for their things in one transaction (or use their debit card or whatever) and then purchase your own items as a separate transaction.

Now, if you are married, it is okay to comingle—you are probably already co-mingled. Unless you have some sort of pre-nuptial agreement or a trust with different marital shares; if you have one of those, just call my office to go over the specifics of your situation and what you should do. What if the person lives with you and you make communal meals for everyone? That’s where a good caregiver agreement comes into play (see a previous article of mine on caregiver agreements). In that situation it’s probably going to make more sense to simply charge a “room and board” fee or a per meal fee but buy the communal groceries with your own funds (unless you really enjoy figuring out what your principal’s fractional share of that bag of chips is—engineers, I’m talking to you!)

You must use the Principal’s funds for their benefit.

This seems obvious but it can get really messy if the Principal lives with you or if they’ve been giving gifts. You should not use the Principal’s money to pay your electric bill, even if they live with you. Again, you should use a caregiver agreement and specify either that they will be paying ½ the electric bill, or paying rent which is meant to encompass their share of utilities, or whatever other arrangement makes sense. But what you should not do, is start using the Principal’s money to pay your expenses willy nilly.

Gifts is an area you really want to be careful. First of all, a power of attorney document has to SPECIFICALLY authorize you to give gifts. If it’s not in the document, you CANNOT do it or you could be in big trouble. Secondly, Medicaid will penalize you for gifts more than $500 in a calendar month. $500 TOTAL not per person. If the Principal has 5 kids, you cannot give them each $500 per month. Without running afoul of Medicaid, at most you could give them $100 per month each. If you aren’t sure if a particular transaction is a good idea, you can always call our office and run it by us.

You must keep track of what you do.

You may think if you only write checks and use a debit card you are all set. Not so. It is very possible someone may ask what something was for. If you write checks, at the very least keep a detailed check ledger, for example “check 1000 Joe Smith—landscaping at mom’s house on 8/01/19 $200” is an example of a good record. Even better is if you keep receipts for everything (just in case).

Now, what if despite your best intentions, you had to pay for something from your own funds and then reimburse yourself. It’s okay if you have to do that, but then keep a really detailed record AND keep the receipt. For example “check 1001 Jane Daughter—reimbursement for ambulance bill for mom from 09/01/2019 $100—see invoice Ambulance company ABC dated 08/29/2019) and then keep that invoice for 5 years (then you can toss it from my perspective—if you need it for taxes that’s another story).

What if you used cash? Again, keep all receipts and note all the things the cash was used for. For example, “cash withdrawal 10/01/2019 $500–$400 Grocery store, $100 clothes from Clothes R’Us—see receipts Grocery Store 10/02/2019 and Clothes R’Us 10/02/2019.” If you gave the principal cash for their own use—you want to note that. Beware too much cash being given to a principal without documenting. If you give the principal $100 every week, that might be okay. But if you give them $1000 every week you’re going to be facing some questions. It’s really better not to use lots of cash unless you are going to be able to get receipts for everything the cash was used for.

As always, if you have any questions about this issue or any other issue you run into, feel free to attend one of our Free Workshops during which we cover a wide range of issues or give us a call.