The Benefits of Being a Co-Trustee on Your Parents or Loved Ones Accounts

As we watch our parents (or any other loved one) make that gradual shift from being totally independent to needing help, there are some steps that can be taken to facilitate family involvement.  Even for those of us who have parents who are 100% capable of managing their affairs, it doesn’t hurt to be prepared for an unexpected circumstance.

The most common solution for being able to manage our parent’s accounts on their behalf is to have an attorney draft a Power of Attorney (“POA”).  A POA is a legal document that authorizes a person to act on another person’s behalf.  We highly recommend them for everyone 18 years and over, so they can have someone act on their behalf when they are no longer able to make financial or health care decisions.   It creates a fiduciary relationship between the Principal (person who created the document) and the Agent (person named to carry out the instructions).  Generally, both a property POA (used for financial decisions) and a healthcare POA are prepared at the same time, but you can name different people as your agent for each form.  This is my non-attorney understanding of how it works. 

So, end of story?  Will we be 100% fine if we take these steps?  Well, until two recent experiences, I would have said “yes,” but now I have an additional suggestion.

Here’s the problem.  Financial institutions do not have any centralized place for processing and retaining a Power of Attorney, and they do not have uniform policies for accepting them. 

I learned this first-hand while helping my dear friend in her final weeks of fighting stage-4 breast cancer.  I worked up the courage to ask her about her estate plan and if everything was in order (it was, and it wasn’t – a good story for another time).  She assured me that she had a Revocable Living Trust and Power of Attorney, so her young adult son could manage everything for her.  It appeared that everything was done correctly.  When he came to town, he realized that he needed to start transferring funds to cover the 24-hour care she required.  With the attorney drafted POA and a letter from her doctor, he went to her bank to alert them that he would be acting on his mom’s behalf.  The surprise was that the bank took almost three weeks to accept her POA.  By that time, she had passed away, and her son was not able to do anything. 

That lost time while the bank was processing the paperwork was crucial for him to make sure that her care needs, mortgage, credit cards and other debts were paid in a timely manner, but he couldn’t take care of anything.  It was an additional stress during an already terrible time.

What happened to my friend is not unique.  Banks have to follow their protocol, and in this day and age, where they are concerned about liability and elder financial abuse, banks and other institutions are cautious about allowing someone else to access a client’s information and initiate transactions on their behalf.

Is there a better solution?  If the parents have trusts (highly recommended), ask that their child (or family member) be added as a co-trustee, to be effective immediately.  It should be pointed out that a co-trustee has full rights to the trust and all assets that are held in that trust, so this approach should only be used when there is complete and absolute trust between the parties.  Once added as a co-trustee, they can monitor financial accounts and step in seamlessly when their parents need their help.  Importantly, the accounts will still be owned by the parents, but they will be able to act as a fiduciary without waiting weeks for a bank to accept (or possibly even reject) the POA, since the bank or financial institution has the child (or family member) on record as a co-trustee and an authorized signer on the account. 

As always, this is ultimately a decision that should be discussed with the parents and their attorney.

If you have any questions on whether this works in practice, both my husband and I worked with our parents a few years ago to make this change, and it has worked perfectly.  While my mom is still quite capable of managing her financial affairs, my husband and his brother have been able to step in for their parents, who are struggling.  It has been a seamless process for them to act on their behalf for all their financial decisions.  His sisters oversee health care decisions, which the health care POA has made possible.  All these decisions were made when they were in good health, and we are so grateful that our parents had the foresight to have taken these steps.  Our advice is to act when everyone is capable of making these decisions.

Please reach out to a member of the SWP team or your attorney with any questions you may have regarding a POA or being added as a co-trustee to a loved one’s trust.

 


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    This article contains general information that is not suitable for everyone. The information contained herein should not be constructed as personalized investment advice. Reading or utilizing this information does not create an advisory relationship. An advisory relationship can be established only after the following two events have been completed (1) our thorough review with you of all the relevant facts pertaining to a potential engagement; and (2) the execution of a Client Advisory Agreement. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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