Managing finances for your loved one
By Jay MacDonald • Bankrate.com

When loved ones lose the ability to manage their money, how can you help?

The answer is not as simple -- or inexpensive -- as you might think.

If elderly Aunt Mary had the presence of mind to appoint you to handle her financial affairs by signing a durable power of attorney for finances while she was still of sound mind (known in legal terms as having capacity), you can use that document to manage her financial affairs for her. A lawyer can help her draw up a power of attorney for about $150.

But if she failed to do so, you may face a lengthy legal procedure to petition the court to become either a conservator or guardian for your aunt that could cost $5,000 to $8,000 in court, attorney and investigator fees.

Sean Scott, an elder law attorney in Largo, Fla., says planning pays off when it comes time to take the financial reins for a loved one.

"The analogy I use is: Have you ever locked yourself out of your car?" he says. "If you have a spare key (power of attorney), it's easy to get back into your car, but if you don't have a spare key, you have to call a locksmith (for a court-appointed position). While you're waiting for that locksmith, you're missing appointments and costing yourself money in a dozen different ways."

What are the differences between a power of attorney, a conservatorship and a guardianship? What are your rights, responsibilities and risks when taking on another's finances?

Let's find those answers now, while Aunt Mary is still able to balance her checkbook.

Delicate conversations
If Aunt Mary loses the ability to manage her financial affairs, a world of trouble awaits. Unpaid bills find their way to collection agencies. Bank accounts go awry, triggering steep monthly fines. Credit card balances skyrocket with penalties and interest. It all works up to a perfect storm of computer notices and dunning telephone calls that only serve to anger and confuse someone in diminished capacity.

Joseph Matthews, attorney and author of "Long-Term Care: How to Plan & Pay for It," says all sorts of fears prevent people from drafting durable powers of attorney.

"Sometimes people don't like to recognize that they need help," he says. "Or there may be several people competing for control and it gets messy. These are delicate conversations to have with an elder because you are basically saying, 'Look, you can't handle your own affairs.' That's a hard thing to say to somebody and for them to accept."

Elders who are estranged from their families or who fear that family members may be positioning to snatch their cash often needlessly avoid drafting a power of attorney. Matthews says the power of attorney is the solution, not the problem.

"It can be done in one of several ways," Matthews says. "You can give that power of attorney immediately, basically saying you now make the decisions. It can be done immediately but jointly; perhaps you say that anything over X amount of dollars has to be signed off by both of you. Or it can be done with something called a 'springing power of attorney,' which means it doesn't go into effect until the elder is incompetent or incapable of making those decisions."

Although Aunt Mary can tailor her power of attorney to make it broad or narrow in scope, drafting a durable power of attorney indicates her desire to extend your powers after she loses capacity. This can be a significant advantage if, in the future, Aunt Mary refuses to accept her inability to manage her affairs or someone challenges your position as her assigned agent.