As family members age they may need more help. Often, they will rely you to make legal, financial and medical decisions on their behalf. This is accomplished through a power of attorney. How you get power of attorney over an elderly parent depends on their mental state. Typically there are two options: First, if legally competent, your parent can voluntarily assign you power of attorney. Alternatively, if they are not legally competent, you can receive custodial power of attorney through a court order. Here’s what you should know.
A financial advisor can walk you through different estate planning options for your financial needs.
What Is a Power of Attorney?
A power of attorney is an assignment of rights. When you give someone a power of attorney, you’re giving them the right to make legal or medical decisions on your behalf. This person is known as your “agent.”
When your agent is acting within their scope of authority, any decisions they make have the same consequences as if you had made them yourself. For example, you can give someone power of attorney to take out a loan on your behalf, in which case you will owe payments, principal and interest just as if you’d signed the paperwork yourself.
Power of attorney allows someone to make decisions on your behalf when you are unavailable or unable to do so. For example, it is common for soldiers to assign a loved one a power of attorney while they are on deployment or for patients to sign a power of attorney while they are under anesthesia.
Why Get Power of Attorney for a Parent?
A power of attorney can help your parents manage their affairs, if they need it. As we age, it’s common to lose mental capacity and competence, to the point where we increasingly don’t understand the nature and quality of our actions. In that case we can increasingly become a danger to our ourselves and others. Diminished capacity can make it hard to keep track of our finances, make us a target for scammers, make it harder to manage property and many other issues.
This has become a particularly acute issue with the retirement of Baby Boomers, the first generation to retire in the full 401(k)/IRA era. These retirees must manage complex asset portfolios through their lifetime, making money management increasingly difficult for aging retirees.
A power of attorney can help deal with this. By acting as your parent’s agent, you can help them with financial and legal issues that they might increasingly struggle with. For example, you can help them manage their portfolio, keep track of their money, or oversee the sale of their house if they want to move.
In some areas, power of attorney is helpful but unnecessary. For example, you don’t need power of attorney to help your parents review their finances, they can simply give you their banking password. But in any matter involving third parties, you will need power of attorney to act on their behalf. This is why power of attorney is essential. Banks, lawyers, doctors, realtors and all other third parties cannot interact with you or give you access to your parents’ assets unless you have their power of attorney.
Getting a Power of Attorney for Your Parents
When it comes to helping an elderly parent, there are two main forms of power of attorney to consider: Voluntary and custodial.
A voluntary power of attorney requires that your parent chooses to give you power of attorney of their own accord. The advantage to this is ease. Your parent can make this assignment with a few readily available forms, and you can work together to manage their assets. The disadvantage to this is, chiefly, revocability. With a voluntary assignment, your parents can still act on their own authority, can fully override your choices and can revoke your agency at any time. If mental capacity is a concern, this leaves risk of irrational or harmful choices.
Every state and jurisdiction has its own process for making a voluntary power of attorney assignment, and the process is no different for an elderly parent than any other situation. In general, your parent or parents will either write a document or fill out a form stating that they assign you power of attorney, specify any limits or scope to this assignment, then sign and date it. In some jurisdictions they will need the document witnessed and notarized.
It is typically good practice to provide copies of this form to relevant third parties like banks, lawyers, doctors and others. In the case of an elderly parent, it is also good practice to have a joint meeting with their doctor to discuss any potential concerns with capacity and competence. If your parent is not legally or medically competent, their assignment will not be legally valid.
A custodial power of attorney is a power of attorney that is assigned to you by a court. You receive the authority to act on your parents’ behalf in legal and financial matters, and your parent loses this authority. For example, a bank would not let them cash out assets from their own accounts. You would need to make that transaction for them.
The advantage to custodial power of attorney is certainty. Your parent cannot override or undo your decisions, nor can they rescind your agency. This protects them from any impulsive or erratic actions taken due to mental decline. The disadvantage is that custodial power of attorney is typically emotionally difficult, legally more complex, and you must be involved in almost any transaction your parent wants to make.
As with voluntary power of attorney, custodial power of attorney is highly jurisdiction-specific (indeed, the term itself will vary from state to state). In general, though, this process must begin with some form of medical diagnosis. A doctor must believe that your parent is mentally impaired such that they cannot reliably understand the nature and quality of their actions.
From there, a court or administrative judge must hold a hearing to determine competency. If the judge agrees with the medical findings, they can issue an order finding your parent legally incompetent and assign you custodial power of attorney over them. This assignment gives you their legal and financial authority, but will require you to exercise that authority in their best interest. Note, however, that the court is not required to choose you for this role. It may choose another person to exercise custody, or it may retain oversight of how you exercise this authority.
Finally, in most jurisdictions a court order is required even if your parent wants to voluntarily relinquish their legal and financial rights. While this may differ in some places, in most jurisdictions any purely voluntary grant of authority can also be voluntarily rescinded. It requires a court order to strip someone of their rights entirely.
Bottom Line
Power of attorney can be an essential planning tool for helping your parents as they age. In many, if not most cases, voluntary power of attorney will be enough to let you manage their assets if their mental state declines. However, if their mental and physical health declines, you may need to seek a custodial grant. But before you decide on a power of attorney, make sure to speak with a lawyer about your specific circumstances.
Power of Attorney Planning Tips
- If you suffer a medical emergency, it’s important for the hospital to know who will make decisions on your behalf. Here’s what you need to know about getting a medical power of attorney.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/FG Trade, ©iStock.com/Capuski, ©iStock.com/Artfully79