Life brings surprises – not always good and not always without responsibility. Occasionally, you can end up having to care financially for someone else – a parent, an adult child, a close friend or a not-so-close relative. Here are some basics to be aware of.
- Before you start, you need to obtain the authorizing document – either a will, trust agreement, power of attorney or court order. You also need to make sure you fully understand your role, duties and responsibility and who else needs to be informed and reported to
- If an insurance bond is necessary, you will need to arrange for a policy
- Also determine if you will be compensated and how
- Make sure you have, or will have, no conflicts of interest. It is also best to avoid any appearances of a conflict, even where there are none
- Do not comingle their affairs with your own
- You will need to locate all of their accounts and assets
- Arrangements will need to be made to consolidate assets and prepare an inventory that will need to be watched over and accounted for
- If inadequate cash is available, then investments will need to be sold
- You will need to arrange to be able to write checks on their accounts. This needs to be done as quickly as possible. You will need to bring an official copy of the authorizing document to the bank and other depositories of the person you are financially caring for
- You will need to coordinate what you are doing with the health care proxy to determine the needs of the person and time frame this will be done over [either a few months, years or permanently] and the cost
- If there are family members, they should be advised of the situation, your role and your request for input
- Proper investment arrangements will need to be made. If you are not financially oriented, you will need to engage an investment professional and/or manager
- You will need to engage an attorney and accountant
- You should get copies of all necessary documents such as the will, health care proxies, living wills, powers of attorney, contracts, employment agreements, retirement plans, leases and anything else that might need to be monitored
- Discuss financial arrangements with the place where your principal is or will be residing
- Locate all outstanding bills
- Arrange to reimburse the health care proxy for any of their out of pocket expenses
- You should start out by immediately keeping careful, complete and meticulous records
- Tax records will need to be kept in order and you will need to locate prior year tax returns
- Funeral arrangements will need to be determined and arranged for including obituary notices if deemed appropriate
- Get a list of people to notify of the condition and then do so appropriately
- Either the apartment will need to be cleaned and lease cancelled or a house put in marketable condition and sold
- Arrange to open a Post Office Box and have mail transferred there
- Find out if there are any safe deposit boxes, locate keys and see what is inside them. Make sure you have someone accompany you to the box to witness the contents
- Any personal items should be collected and saved for the person or their family
- If there are funds being held for minor children, coordination will need to be done with the guardians,and investments synchronized with trusts or other documents providing for their financial well-being
- If Medicaid will be applied for, speak to an attorney who could advise you on how to go about it. Note that you will need copies of bank and brokerage statements and complete details of transactions going back five full years, so you will need to start locating these
- A preventative action, while everything is ok, is to make arrangements to have access to some ready funds if there is a sudden need. This can be done by having the principal open a bank account with a reasonable balance and making you the limited power of attorney on that account. This is so you will be able to immediately write checks if the need arises
This is a start of what you should expect when called on to manage someone else’s affairs. The care needs to be at a higher level than you might do for yourself. Good luck if you find yourself in such a situation.
Part of many estate plans is choosing an Executor and Trustee. For an estate, an Executor or Personal Representative has to be selected who will assemble the assets, pay expenses and liabilities including taxes, and turn the remaining assets over to the beneficiaries. Where there are trusts – either created while the grantor is living or through the will – a Trustee will be needed to perform services consistent with the trust document.
In some respect, the choice of Trustees is a more important decision than choosing an Executor since, once the estate is settled the Executor’s job is completed. The Trustees, however, will remain until all the assets are ultimately distributed.
The testator or grantor should select Executors and Trustees whom they believe will exercise strong, fair, compassionate, sympathetic and independent judgment and who will not dawdle and hopefully be knowledgeable about financial decisions or smart enough to recognize that they need to obtain the right professional assistance. A potential executor/trustee should make sure he or she knows what they are getting into before accepting this responsibility.
There are many stories about executors and trustees overstepping their bounds by self-dealing, paying themselves exorbitant fees, making terrible investment decisions, generally disregarding the responsibilities they assumed or engaging in illegal actions. I was recently made aware of a terrible situation and asked how a client could protect themself and their beneficiaries from similar actions. Here are a few ways:
- It is assumed “good” people are chosen with care, understanding that this is not a popularity contest and that an important and serious responsibility is being conferred
- You can appoint more than one person – preferably people that are independent of each other and require joint decisions on most matters over a stated amount – such as $10,000, $50,000 or $100,000 depending upon the amount of funds involved
- Some people appoint a bank or trust company feeling that they have more safeguards in place
- Whether Executors and Trustees need bonding will be determined by what the will or trust provides. Many times bonding is waived. A suggestion for extra caution is to require a bond. This is an expense, but the insurance company will then assure the proper performance of the Executor and Trustee. Part of their due diligence will be to assess the creditworthiness and background of the people selected
- Beneficiaries should ask for regular reports of financial activity and a listing of assets and liabilities. I suggest at least quarterly. Note that fiduciaries have the responsibility to regularly account to the beneficiaries
- When the quarterly reports are received, the changes in the assets and liabilities should be compared with the last report. The beneficiaries should make sure they understand what caused the changes and that the changes agree with the activity reports for the same period
- If brokerage accounts are involved, beneficiaries should ask either for copies to be sent directly from the broker or for on-line access to view the transactions
- Make sure the funds are in accounts with recognized securities brokers
- Always question something you don’t understand and if you do not get responses you understand then assume that the transaction is improper and ask someone else to review it for you
- Engage a good accountant and attorney when you are setting up your plans. Poorly drafted wills or trust instruments can cost your family far more emotionally and financially in the long run than the upfront cost of engaging experienced professionals
- Make sure that there is a clear threat of discovery of any improper or illegal actions
It is impossible to protect against every situation, but setting up a sound plan should deter most people from dishonest actions. With regard to incompetent or inappropriate actions, you probably picked the wrong person. Exercise thorough seriousness in your decisions. Your family’s wellbeing will depend on it.
Alfred J. La Rosa, CPA, MS, Partner in our Trust & Estate Services Group assisted in the preparation of this blog.
Death is certain… although, the timing is usually unknown. Have you ever thought about what your final legacy would be? Have you thought about what people would say at your funeral? Now would be a good time to jot down a few thoughts – and then look at it to see if that is how you live your life, how you ascribe importance to what you do and the examples you set. If there is a divergence, why not start to bring your thoughts and actions closer together.
I look at the obituaries in my local newspaper almost every day. The announcements there are either free or very low cost, but in the NY Times they can run upwards of $10,000. People leave instructions, and even write their obituary, setting aside the money to pay for it. Most of the obits tell what someone has done, their accomplishments and their charitable activities. They do not tell how they felt, what values they had, how they would like their progeny to act and what tenets they should adopt. To my way of thinking, the obits are ego driven without conferring benefits.
A more important alternative is to write down your thoughts, wishes, dreams accomplished and not, and values you would expect those mourning you to learn and grow from. It’s highly personal, so write it down, don’t show anyone and leave it where it will be discovered after your death.
Better yet, after you write it down, try to convey the feelings you expressed in that time to those you want to leave a lasting impression on. People learn by example; believing the accomplishment ridden obit would provide the example is not realistic. Provide the examples by your everyday living. Write it down and then live the life you want to serve as your example.
Stephen King offers a view – pure fiction, but a probable interpretation. It’s not pretty, and who knows how the sequence of events would have flown from that change, or for that matter any changes in our lives.
Every day we make decisions – some good and some regretful. Hopefully, the bad decisions are minimized. We also can have improper split second movements that can destroy lives, ruin businesses and alter the future course of everyone involved with the offender. Answering a cell phone or texting while driving, speeding up to make a light, skipping a bunch of checklist questions to get a report in the mail, being afraid to report an immoral action by a close colleague, taking something that isn’t yours because of no oversight or a single illegal stock trade are all impulsive decisions that can cause destruction of your peaceful life… and that of your entire family and anyone else affected.
Many times the difference is a slight lack of a firm mindset of doing things right. Do things right! Don’t take inappropriate short cuts! Don’t risk ruining your life for an instant of fleeting gratification! Don’t be stupid!
Tomorrow is the 50th anniversary of President Kennedy’s death – his assassination. To me, assassination was an ancient term referring to Lincoln one hundred years earlier – in another time – somewhat more primitive, less civilized and more so with cowboys roaming the ranges with six shooters.
As the anniversary approached, I started recalling more and more. Then, I started thinking about some of the unbelievable things in business that have occurred since that day; and while we tend to remember notorious things, I started to think about the extraordinary good things that have happened that we now take for granted. Partly because there was no triggering activity and partly because they just seem to sneak up until we believed they were always here. Copiers and high-speed scanners; cell phones and smartphones, iPads and Kindles and personal computers, the Internet and email to name just a few. Great advances have also been made in the medical, scientific, energy and agricultural arenas that are not included here.
The way we work has also changed. The Cloud, social networking, telecommuting, on line research, data mining, smart scanning and paperless work procedures are some recent changes we take for granted. Even changes in management and office design. Many businesses no longer provide offices for their staff but have common areas and permit offsite work.
But, what are the great changes that will be made in the next years? And who will make them? Will there be any, or will everything we do today not improve? I can’t believe progress will stop. To grow, everyone needs to become an innovator – everyone needs to think about what they do, how it can be refined and improved, how it can be simplified and how something new can be developed to make it better.
We need thinking people. We need imaginative people. We need involved people who really like, understand and are fully aware of what they do. I suggest that you make yourself a committee of one and transcend the Information Age to the Conceptual Age. Give yourself the tools. Read. Watch. Imagine. Take interesting vacations. Introduce yourself to new things. Observe. Think. Think hard. Think creatively. Think about change. Be open to change. And it will happen. And you can cause it!
Go for it!
And tomorrow, let’s say a prayer for President Kennedy who was taken from us way too soon.
Asking parents to explain their finances and to make sure they get their affairs in order is always a touchy subject – but, if it isn’t done, things will be more difficult when they are no longer around or if they are around but unable to care for themselves. It is reality and must be dealt with.
I believe a direct approach is the best approach. Here is a possible conversation:
YOU: Mom, I think we should talk about getting your affairs in order.
MOM: Why, everything is in order?
YOU: Well, can you show me what you have?
MOM: Why, you don’t trust me?
YOU: It has nothing to do with trust. Things happen and things would be much easier if I know what you had.
MOM: I think that is my business.
YOU: Mom, someday you might not be able to take care of yourself and we would need to use your money to give you the right care. How can I make arrangements if I don’t know where everything is and how much you have and what you would want me to do?
MOM: What could happen?
YOU: You could have a stroke and not be able to handle your finances.
MOM: So, you could take my money and put me in a nursing home?
YOU: Not so. Maybe you need to go to a rehab facility and there is a nice one near where I live and a crappy one not close. If I don’t know what you have and can afford, you might end up in the crappy one. I only want the best for you.
MOM: Well, your wife would want the crappy one so she could get more of my money.
YOU: Absolutely not so! You know how she feels about you, and she is the one that always calls and brings you with us.
MOM: I always sit in the middle in the back of the car.
YOU: We always ask if you want to sit in the front and you say no. We have you sit in the middle between the two boys so they won’t fight. And besides, you always end up talking to each of them during the ride and you like that, and so do the boys.
MOM: Well, I am always squeezed in.
YOU: O.K. Next time you’ll sit in the front.
MOM: I don’t like the front in case there is an accident and the seat belt is always too tight.
YOU: Mom, this has nothing to do with getting your finances in order. We really need to sit down and discuss it. I am not asking you to sign anything over to me, just show me where you keep things and let’s make some arrangements for temporary funds in case there is an emergency. Also, I need to know that everything is in order. I need to check your will, health care proxy, power of attorney and living will. This is important stuff and if we don’t do it orderly, it will be a mess should the worse happens and then things may not be the way you would want it. I am concerned about what’s best for you, also, if we don’t work things out extra money will go to taxes and lawyers’ fees, and delays and wasted efforts and possibly fighting between your children. Let’s do this next Tuesday. I’ll come over for dinner and then we’ll start going over things.
MOM: I’ll make you lamb chops.
It needs to be done – do it soon, be direct and get it behind you and your parents. Also, my experience indicates that your parents will feel better sharing their information and getting this over with.
Following, are some ways to contribute that I adapted from a letter I prepared for a charity I am on the Board of. Substitute your organization’s name in the text and use it for your mailings. It also has some good tips for those that make significant contributions. Consult with a tax advisor before proceeding.
Ways to contribute
Contributions to NAME OF ORGANIZATION are deductible on your tax return if you itemize. There are several effective tax methods that can allow you to get extra mileage from your contributions while maintaining your cash position.
Almost all contributions made to us are with checks or credit cards. However, you can donate appreciated stock you owned more than one year. You’ll get a full deduction for the stock’s value, not have to pay tax on the gain, and will conserve your cash.
Besides stock you purchased outright, you can donate dividend reinvestment shares, stock spin-off shares, stock in demutualized life insurance companies that you received for “free,” or stock you inherited or was given to you as a gift.
Making your contribution this way is a completely legitimate tax maneuver and can be done very easily. Our organization’s policy is to immediately sell any securities transferred with the proceeds considered as your charitable contribution.
Transfers can easily be made by instructing your broker to transfer the stock you want to donate to our broker’s transfer address. Contact the executive director for this information.
Charitable gift annuity
If you are over age 70 it might be advisable to contribute a charity gift annuity and guarantee a cash-flow to yourself for the rest of your life that is greater than the current long-term interest rates. For example, a 70-year-old can get a 6.5% distribution for the rest of their life, a 75-year-old 7.1%, an 80-year-old an 8.0% payment and someone 85 a 9.5% payment. Payouts can also be arranged for the rest of both spouses’ lives. Further, there is a limited current income tax deduction based upon your age. These payout rates will vary based on your age and current market interest rates when you make your contribution. In exchange for the lifetime payment guarantee, there would be no refund of unexpended funds.
You can purchase a life insurance policy naming our organization as owner and beneficiary. The annual premiums you pay will be tax deductible by you as a charitable contribution and we will receive the proceeds upon your death. This is a way you can substantially help us secure our future and establish a leveraged legacy for yourself or family. You can also provide us, if you wish, with instructions of how you want the proceeds applied.
Make donations from your IRA account
If you are over the age 70 ½ and/or taking required minimum distributions, you can direct a contribution to us from your IRA account. The contribution would not be deductible but the withdrawal would not be taxable. This is a way to make a contribution without using the cash you have in your individual name and can use the amount contributed as part of your required minimum distribution. This method would particularly benefit people that do not itemize and would otherwise get no tax benefit from their charitable payment, or those in higher federal tax brackets that will not get a full benefit for their contributions, or who get no benefit from their deduction on their state income tax returns. There is a maximum transfer of $100,000 and this is set to expire on December 31, 2013.
You can also designate our organization as a beneficiary, partial beneficiary or alternate beneficiary on your IRA, 401k, 403b or pension plan. The amount donated this way would not be subject to income or estate taxes after you pass on.
Remember us in your will
A wonderful way to support us is to remember us with a bequest. This can be any amount specified in your will or living trust. You can also specify how you want your bequest applied. You can include wording such as the following in your will or trust:
I designate $50,000 [or any amount of your choosing] to be paid to NAME OF ORGANIZATION.
There are other methods that can be used such as charity remainder or lead trusts, and gifts of inventory, real estate, art or antiques. For additional information on the above and on other sophisticated tax techniques please contact the executive director who will put you in touch with a CPA volunteer to advise you on the best way you can contribute to us. If you want additional information about anything mentioned above, please contact the executive director.