My Family - January 2011
 

What's a little money among family?
Combining finances may be tempting, but comes with risks

Mom is getting older. Dad used to take care of all their finances, from paying the bills and investing to balancing the check book. After he died, Mom is struggling to learn and she isn't doing very well. For a number of reasons, bills aren't getting paid, and she isn't really sure where the money is going. You want her to remain as independent as possible, but you have to help her before she goes broke. But how?

According to AARP, before you can help an older adult with her finances, you have to understand her financial status. You will need to know:

• Sources of income and how they are deposited in her accounts, plus any assets that can be tapped if necessary;
• Anyone who handles her finances, including accountants, stockbrokers or financial planners;
• What bills need to be paid and when;
• Insurance policies such as life, disability and long-term care;
• Tax returns and any records used to complete them;
• Financial items such as property sales or credit issues;
• Medical issues and doctors; and
• Any estate planning documents such as wills, advance directives and health and financial powers of attorney.

Let your mom know, in advance, that you'd like to have an important discussion about her finances. Have the conversation face to face, with financial documents in hand.

Helping a family member with her finances does not mean you have to take total control. For example, you can share checking account privileges on your mother's account. As an authorized signer, your mother does not give up ownership of the account, but you will be able to write checks for her, if necessary. Set up online banking and bill payment accounts for your mother and share her passwords.

If your mother has real trouble dealing with finances but does not want you to control her money, you can give her prepaid debit cards and prepaid credit cards to help control her spending. A reloadable debit card allows her to spend only up to the amount you have pre-deposited into the account. You can always buy things for her, pay some of her bills directly or give her a gift card to stores. You can slip her cash, but you'll never know where she spent it. On the other hand, she can't spend more than you give her and go over the limit - either the bank-imposed limit or the one you had in mind.

Adding your mom as an authorized user to your credit card or mixing her finances with yours is not a good idea. As she gets older, your mother may have a harder time understanding financial limitations and remembering things. If she has your card, you ultimately are responsible for the bill. If you're using her income to pay your credit card bill, even though it's for her expenses, your siblings and law enforcement could become involved. If your mom passes away when you have a balance because of purchases she has made, you won't be able to use her money to pay it off. You'll have to wait until her estate is settled. In the meantime, you're carrying a balance on your card, steadily racking up interest expense. Also, if you take care of your mom to such a degree that you qualify to take a dependency exemption for her on your tax return, you'll need to be able to show what expenses of hers you paid for. If it's all on a single credit card with your expenses, that's going to be difficult.

Keeping your finances separate keeps things simple and above board. It all begins with a conversation with your mother about what she wants to do. When a solution is reached, put it down in writing, particularly if your siblings have not been involved, to be sure everything is out in the open and is traceable on paper. If the conversation is too challenging for you to handle on your own, consider asking an impartial party, such as a minister or even a professional mediator.