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Seniors, keep your money safe from your children

Senior getting help from adult child

Excerpted with permission of the publisher, Wiley, from The Essential Retirement Guide: A Contrarian's Perspective by Fred Vettese. Copyright (c) 2015, John Wiley and Sons, Inc. All rights reserved.

Financial planner Rona Birenbaum points out that most of her older clients "hold onto every expression of their independence for as long as they possibly can," sometimes to their detriment. If you are eventually going to be forced to relinquish control, you will no doubt prefer to have the conduct of your ongoing financial affairs reflect your own preferences from a time when you were still of sound mind and body rather than the preferences of others who take over from you, no matter how competent they might be.

It is exceedingly common for the grown-up children of elderly parents to start to feel a sense of ownership of their parents' assets while one or both parents are still alive. Sometimes, the children of elderly clients slowly bleed their parents dry with ongoing requests for financial support. I know of one case myself, and Rona tells me it is not atypical.

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The elderly parents reach a point when they become especially vulnerable to requests for money, but they could have protected themselves better by taking appropriate action earlier on. As already mentioned, such action might include buying an annuity. By the time you really need it, it may well be too late to do it, either because you are no longer capable of making that choice or because your own adult children block you from proceeding. You will therefore want to plan ahead for that dreaded time when you need to cede control to your children or other guardians.

This brings up the issue of the power of attorney document (POA). I asked Kimberly A. Whaley, certified specialist in estates and trust law, for her thoughts on the POA. She said that this document has long been viewed as a means to legally protect one's financial and personal care interests by planning in advance for illness, infirmity, or decisional incapacity respecting property and personal care. The POA also can be useful in minimizing future family conflict and perhaps preventing expensive and avoidable litigation. In certain circumstances, however, POA documents may cause rather than prevent conflict, and as such they must be drafted to reflect the specific needs of the individual and that individual's family dynamics.

In essence, a POA is a legal instrument that grants an individual (known as the attorney) the right to making financial decisions and conducting certain transactions on behalf of the grantor. In the case of property transactions it is known as a power of attorney for property (POAP). A POAP can be limited to a specific time or task and is often used in business or for a short-term purpose. Also, if the grantor of a POAP becomes mentally incapable, his or her attorney can no longer act for them. However, a POAP can also be cast in "continuing" or "enduring" form (a CPOAP), in which case it permits an attorney to continue to act even after the grantor becomes incapacitated.

The powers to act on your behalf under a POAP/CPOAP are effective immediately upon signing, unless there is a triggering mechanism in the document stating that it will come into effect at a specific future date or event, such as the incapacity of the grantor as deter-mined by a recognized third party. This can make a POA both a desirable and a dangerous document. Many older adults use a POA so that an adult child can assist with banking, not realizing the extent of the power they have granted. A POAP is an extremely powerful document that enables an attorney (the person appointed to make financial decision on your behalf) to do virtually anything on the grantor's behalf in respect of property that the grantor could do if capable, except make a will.

An unscrupulous child could see this as an opportunity to access an inheritance early, or misuse the power in a self-interested manner. In one real-life case, an only child of an elderly widow used a POA that his mother granted him to deplete her of all her assets, leaving her penniless and reduced to living in a homeless shelter. The mother had over $1-million in assets, including several properties. The son used the powers under the CPOAP to mortgage all of her properties for his own benefit and then defaulted on all of the mortgages. He also drained her bank account and investment accounts. At trial, the judge noted, "In jail, [the son] would be better off physically than his own mother. He will be sheltered, fed regularly and kept warm." The son was sentenced to 10 years in prison though this was reduced to 8 years on appeal.

Another real-life story involves an older adult who was duped into granting a POA for property to her caregiver. The older adult was a frail elderly woman who suffered a number of physical challenges that left her vulnerable and dependent upon her caregiver. The care-giver used the POA to obtain a bank card for the older adult's savings account and drained the bank account of over $100,000. The care-giver was sentenced to 21 months in prison.

POAs are a practical, flexible, and convenient way to plan for your potential decisional incapacity or illness. However, they can make older adults vulnerable to financial abuse. Obviously, the choice of an attorney is very important. While children may be an obvious choice, they may not be your best or wisest option. Regardless, you will want to settle these matters long before the need for a POA arises.

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You may never lose your ability to handle your financial affairs, but you do not want to rely on dumb luck that you can somehow avoid the infirmities that afflict most of us in our later years. My advice is to take action sooner rather than later.

Excerpted with permission of the publisher, Wiley, from The Essential Retirement Guide: A Contrarian's Perspective by Fred Vettese. Copyright (c) 2015, John Wiley and Sons, Inc. All rights reserved.

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