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5 Financial Tips for Caregivers

Acting as a caregiver—whether it's for an aging parent, disabled relative, or a dependent child with special needs—means wearing different hats. For instance, you may be taking care of a loved one's physical needs while also managing their finances.

Assuming responsibility for someone else's financial situation can present some challenges but having a strategy can help you meet them head-on. If you're acting as a financial caregiver or anticipate taking on that role eventually, here are five tips that can help.

1. Start with an inventory

Taking a financial inventory is an important first step when managing someone else's money. Specifically, that means gathering a lot of documentation to understand their full financial picture. From bank statements to life insurance, here are a few of the documents you should review:

  • Bank account statements
  • Credit card statements
  • Financial documents related to assets your loved one owns (i.e., home, vehicles, investment accounts, etc.)
  • Financial documents related to debts your loved one owes (i.e., mortgage, vehicle loans, business debts, etc.)
  • Any ongoing expenses or bills such as utilities, debt payments, or medical bills
  • Will and/or living trust document
  • Life insurance policies

If your loved one has a budget in place, you should ask for that as well. The goal with this initial step is to get a sense of what you'll be managing as a financial caregiver, so you can map out a plan for moving forward.

2. Cover the legal bases

Taking over caregiving duties has some legal implications, and there are certain documents your loved one may need or want to have in place. One of them is a financial power of attorney.

This document grants you the power to manage someone else's finances on their behalf. The scope of a financial power of attorney can be broad or narrow, depending on the preferences of the person you're caring for. For instance, if you're helping aging parents with their money, you'd need power of attorney in order to be added to their bank accounts.

If your parents have a will and/or a living trust, you should ask to be named the executor and trustee of those, respectively. An executor is responsible for filing the will in probate court, collecting assets, paying debts owed by the deceased person's estate, and making sure the terms of the will are followed. A trustee is responsible for managing assets in the trust according to the wishes of the person who created it.

You may also want to consider whether it's necessary or will be necessary at some point to establish a legal guardianship or conservatorship for the person you're taking care of. Guardianship allows you to make decisions with regard to physical needs, while conservatorship applies to financial decision-making. Talking to an estate planning attorney can help if you're not sure which one you need.

3. Create a bill payment schedule

Once you have a detailed list of bills for the person you're caring for, you can work out a plan for paying them each month. For instance, you may pay them from your loved one's bank account or your own, depending on the agreement you have.

Next, set up a payment schedule. Consider automating the payments to avoid manual management and potential late payment penalties. Or, pencil in due dates for each bill on a calendar or set up email or text alerts to notify you when a due date is approaching.

Finally, look for any bills that could be eliminated to help reduce expenses. In the case of an aging parent, for example, they may be paying for unnecessary subscriptions or services that could be cut from their budget.

4. Take a closer look at liabilities

Once you've gotten bill payments worked out, you can turn your attention to managing your loved one's assets and debts. How you handle assets may be dictated by the terms of your loved one's will, living trust (if they have one), or financial power of attorney. For example, your parents may specify that their home should be sold so funds can be used to pay for their care. Or they may want you to work with their financial advisor to manage their investment accounts if they're not able to do so.

When reviewing assets, check to see how they're titled. For example, your parents' home might be in both their names, but they might have separate bank or investment accounts. And keep in mind that some accounts, such as a 401(k) or life insurance policy, may have a named beneficiary. You'll need to know who these individuals are in the event that your loved one passes away, and those assets need to be passed on to the beneficiary.

If debt is part of your loved one's financial picture, you'll have to decide how to manage it. For instance, you could continue with the repayment schedule they've already established. Or you might decide it’s simpler to pay it off by liquidating some of their assets or taking money from your own cash reserves.

5. Think long-term

When you're a new family caregiver, it’s easy to focus on what’s in right front of you: doctors’ visits, paying bills, maybe even home maintenance. But you also have to think about the future and what changes it might bring.

Long-term care is a key consideration to keep in mind. In the future, your family member may require more specialized care than you're able to give, which could mean moving into a nursing home. As a financial caregiver, one of your duties may be determining how to pay for it. A long-term care insurance policy can help, but if your parents don't have one in place, you may have to draw from their assets since Medicare doesn't cover it.

Lastly, give some thought to how managing someone else's money can impact your own financial health. Specifically, consider whether it might add new costs to your budget or affect your ability to save and plan for retirement and what you may need to do to adjust. It’s important not to lose sight of your own finances and goals as you take on additional responsibility.

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