As parents age, their ability to manage their finances starts slipping. It might start as a missed bill here, excessive spending, or voluntarily sending money in a romance scam before it spirals out of control.
My hope is that parents are having conversations with their adult children long before any of that happens, but that is often not the case.
Adult children are increasingly being forced with the difficult task of bringing up conversations about how to be a DPOA for their parents.
You may be wondering how to bring up the conversation and if they agree to have an attorney create a Durable Power of Attorney for Finances, you may be uncertain about how to responsibly be a DPOA for your parents.
This guide will walk you through what a DPOA for Finances is, how it differs from others, what you can do as a DPOA, practical tips for being a DPOA, common mistakes with DPOAs, and what happens if you parents don’t create one.
DPOA Basics
I’m going to be talking about a Durable Power of Attorney for Finances, but please know there are different types: Limited Power of Attorney, General Power of Attorney, and Springing Power of Attorney.
Limited and General Powers of Attorneys have their place, but when you are dealing with an aging parent, you generally want a Power of Attorney that will be effective even when they are incapacitated. That’s what a Durable Power of Attorney does.
The Limited and General Powers of Attorneys are not effective when someone becomes incapacitated. For example, if your parent has a stroke and is in the hospital unable to communicate, those Powers of Attorneys would no longer be effective, whereas a Durable Power of Attorney would.
What is a DPOA?
A Durable Power of Attorney is a legal document that allows another person, known as an agent or attorney in fact, to act on your behalf.
I tell people to think about it as the document that allows a person you trust to take over your financial life and do many of the things you would normally do, such as pay bills, open new accounts, withdraw money, and more.
Sometimes, people create a DPOA, but if you read the fine print of the document, it’s not effective immediately. Instead, it’s only effective upon certain conditions.
This is known as a Springing DPOA. It usually says the agent cannot take action until two physicians declare someone incapacitated or unable to manage their affairs.
Some people like the springing structure, but I’m not a fan of it for two reasons:
- Difficulty finding physicians who will declare someone incapacitated
- Adds extra stress and step during an already difficult time
For example, imagine an adult child looking after a parent with memory issues. Some days, the parent is okay while others, they are making poor financial decisions and becoming a victim of numerous scams.
The adult child has to go to a physician or two to try to have their parent deemed unable to manage their affairs, but unfortunately, the parent is having an okay day. The physician says they won’t declare them incapacitated and the parent continues giving more money away.
I understand physicians being hesitant about declaring someone unable to manage their affairs. For most people aging, it’s a grey area, particular with cognitive impairment. It’s not like they are hospitalized and clearly unable to manage their affairs.
In contrast, if the DPOA was effective immediately (i.e. as soon as they signed it), the adult child doesn’t need to go see a physician. They can submit the DPOA to their financial institution, get added as an agent (usually within a few weeks), and help their parent better manage their money.
I don’t like springing DPOAs because if you trust the agent you named, they should have access to help you as soon as the document is signed — not just when you are incapacitated. If you don’t trust them, why are you naming them?
Where Can I Get a DPOA?
Many states have free statutory forms or non-profits with free templates, but I’d encourage you to work with an attorney as part of your overall estate plan with a Will or Trust, DPOA for Finances, DPOA for Medical, and Advanced Directives.
Here are a couple of state or free template forms:
The reason I recommend working with an attorney is to better understand what powers you are giving the agent and customize the document to your liking. For example, not all documents allow your agent to make gifts or change beneficiaries, and that could lead to problems later. I’ll elaborate more under the Common Mistakes with DPOA section.
What Can I Do as a DPOA?
As the DPOA, you can do a lot, but it depends on what the document says. As I mentioned earlier, it essentially allows you to take over to manage the financial affairs of the person who named you, but potentially with some limitations.
For example, it might allow you to do the following:
- Open and close accounts
- Open and remove items from a safe deposit box
- Apply for government benefits
- File taxes
- Trade stocks, bonds, ETFs, mutual funds, options, etc.
- Buy and sell personal property
- Manage real property
- Withdraw and deposit money
- Make gifts
- Change beneficiaries
- Deal with digital assets
Generally, the more powers directly named, the easier time your agent will have taking over and managing your financial life. Some financial institutions are conservative in accepting documents, so if a specific power is not named, they sometimes reject the document altogether and put restrictions on the account.
Practical Tips to Being a DPOA
Once a DPOA is created, the first step is making sure it will be accepted by the different financial institutions. For example, if you have a checking and savings account with Bank ABC, submit it to the bank and see if it is accepted, even before you need it. This process can take weeks as it tends to go to a special legal department for review.
This can be frustrating if you are trying to add an agent in a hurry during an emergency because you want access as soon as possible, but from the bank’s perspective, they are trying to protect the account holder from unauthorized access.
Next, have a conversation with your parents about their financial situation. It’s challenging to manage someone’s financial life if you don’t know anything about it.
For example, here are questions you can ask them:
- Where are your bank accounts located?
- Where are your investment accounts located?
- What income sources do you have?
- How are your bills paid (manually, autopay, a mix of both, etc.)?
- What property do you own and what are the responsibilities of each property?
- Who is your insurance company (auto, homeowners, umbrella, long-term care, health, etc.)? How are your premiums paid?
You are trying to get a snapshot of their financial picture and how it works on a day-to-day basis. It’s much easier to write down what income is coming in, what expenses are going out, and how to pay bills instead of trying to figure it out as you go.
Unfortunately, many people step into the role too late and it’s like a nightmare treasure hunt to find all of the accounts, figure out how to pay bills, and make sure bills are not missed.
Some bills are extremely important while others are not. It’s probably not a big deal if the cable isn’t paid. That can easily be corrected.
Others can be life changing. For example, I once found unpaid property taxes for someone who was stepping into the role as durable power of attorney. Those have severe consequences if not paid. The same goes for health insurance premiums.
As you start paying bills, save receipts. My preferred method is to take a picture or scan it and upload it to the cloud, such as iCloud, Dropbox, Microsoft OneDrive, Google Drive, etc. It’s important to document what you are doing as the durable power of attorney in case there are ever questions or you need to support why you took certain action.
For instance, if a sibling or heir questions how you are spending for your loved one or you need to provide proof that you reimbursed yourself for the right amount, those receipts can mean everything.
I also suggest keeping a journal or online spreadsheet with a list of their current medications and notable medical appointments. Although online health portals like MyChart exist, having your own documentation is helpful. For example, if your loved one didn’t respond well to a certain medication, you can note that in your file. A different doctor a few years later may try to put them on that same medication.
Finally, remember to sign as the durable power of attorney and not as your name. For example, if your name is Jane Smith and your loved one’s name is Tim Smith, you want to sign as Tim Smith by Jane Smith, as Power of Attorney.
Follow this format or something similar: [Their Name] by [Your Name], as Power of Attorney.
If you sign it as your own name, you may be personally liable for what you are signing. For example, if they are moving into assisted living, you don’t want to be financially responsible if they don’t pay.
Common Mistakes with DPOA
When people create DPOAs or use templates, they often make mistakes in how they set it up.
I’m considering these mistakes, but they may not be in certain situations.
For example, in most cases, naming more than one agent is a mistake. I often see people who have two children name two children as their agents at the same time. This is not my preferred set up.
What happens if they disagree? What if they both need to sign something and one is too busy to sign? What happens if a decision needs to be made quickly and one person likes to talk it over more than the other?
Two agents can create logistical problems. Even if the DPOA says they can act independently, financial institutions often will still require signatures from both of them. I’ve seen this slow down simple tasks that should take a day extend to more than a week.
The other mistake I often see is not being intentional about what powers you are giving your agent.
For example, do you want to allow them any of the following powers?
- Change beneficiaries
- Make gifts
- Handle digital assets
Sometimes people are nervous about allowing their agent to change beneficiaries, but I’ve seen issues when an agent was simply trying to open a new account to consolidate all financial accounts to one financial institution and match the beneficiaries of the existing accounts, and it was a problem.
You can put language in the DPOA that the beneficiaries have to match your existing plans or not benefit the agent changing them anymore than the existing plan has. There are ways to limit it, but still provide flexibility.
The same issue can arise for gifts. For states with low estate tax exemptions amounts, such as Washington and Oregon, it can make sense to make gifts to reduce estate values. If your agent can’t make those gifts, even if they are in line with your existing philosophy around gifting, it can cause problems.
I see more DPOAs allowing the handling of digital assets, but if your parents have an old DPOA, it may not have language around digital assets. Digital assets could include crypto, photos, books, music, and videos.
Lastly, the common mistake I see is people thinking that if they are a durable power of attorney that they can force someone to do something. A DPOA doesn’t allow you to force your parents to do something financially.
It doesn’t allow you to separate your parents from their money. You can’t hide it when they do things you don’t agree with. You can’t force them to budget or suddenly become responsible.
If your dad wants to give money to a con artist pretending to be a woman in love with him, it’s mightily hard to stop him. Unfortunately, many people try to move the money to a separate bank account their parents don’t have access to, but then find themselves in court when their parents sue them.
I found out the hard way that a DPOA can allow you to step in and help when things go wrong, but it’s not going to give you much control to prevent things from going wrong. I had to watch my dad relapse, spend thousands of dollars on cocaine, and pay for his neighbor’s apartments despite being his DPOA.
I even consulted an attorney. They told me I could try to pursue guardianship, but in that particular county, it wouldn’t have made much of a difference even if I had been successful. Also, it would be expensive, and then I’d have the administrative hassle of court oversight when managing his finances.
With a DPOA, you are giving an agent the keys to your financial life. It’s worth paying someone to walk you through the pros and cons of different powers.
What Happens if My Parents Don’t Have a DPOA?
If your parents don’t have a DPOA and they are now to the point where they can’t legally sign one, you have the unfortunate experience of needing to obtain guardianship over them.
You’ll need to file a petition with the court requesting guardianship. You may need to hire an attorney for this process, which can cost at least a few thousand dollars. The court will need to decide if your parents can’t manage their finances or healthcare decisions. A physician or two will comment on their findings and a judge will review the available information to decide what is in their best interest.
From there, the guardian has the displeasure of an submitting an annual accounting of the finances (i.e. what was spent, on what, etc.) and may need to get court approval for major decisions.
Guardianship can be just for healthcare decisions, just for financial matters, or for both. It can also be for full or limited powers, depending on what the court decides.
The full process usually takes at least a few months, but can be longer.
Guardianship is a public, expensive, and slow process with ongoing oversight that provides little to no flexibility, which is why it’s critical to have a durable power of attorney and healthcare power of attorney.
Other Estate Planning Documents You Want to Review
As you prepare to be the DPOA for your parents, it’s worth spending time reviewing their Will or Trust, healthcare power of attorney, and any advanced directives. You don’t want to be the victim of common estate plan mistakes. At the same time, review the account titling of bank and brokerage accounts, as well as beneficiaries on all financial accounts.
Many people create their Will and never revisit it, which is a mistake.
Are the right people in the right roles? For example, if your executor close and able to handle the administrative side after death? Are there back ups named if someone is unable or unwilling to serve?
Is the account titling right on all accounts? If an account has a transfer on death (TOD) or payable on death (POD) designation, is that intentional? Is it in conflict with the Will? I often see people slap a TOD or POD on bank or brokerage accounts trying to avoid probate only to mess up the careful planning they did with a Will or Trust.
Are all of the beneficiaries accurate on retirement accounts? Have you checked the contingent beneficiaries? Do they need to have any per stirpes or per capita designation?
If your parents have a healthcare power of attorney and advanced directives, do you have any idea of what sort of quality of life would be acceptable to them?
I find those forms are more “check the box” type of forms, but don’t do much to inform you about what to do in the grey area most of us live.
If they have a do not resuscitate (DNR) order, do they have a POLST form in an easily accessible location for emergency responders to see and/or a bracelet informing them?
Estate plans shouldn’t live in a file folder on a bookshelf. They should be opened, reviewed, discussed, and regularly updated as life changes. They are the documents that allow your loved ones to honor your wishes.
Final Thoughts – My Question for You
Being a DPOA for your parents is a big role.
If your parents don’t have a DPOA drafted, try to get them to create it ASAP. The alternative if ever needed, guardianship, is a cumbersome process.
If your parents have a DPOA, review it with them and/or their attorney. Does it have the appropriate powers listed? Have you tried adding it to a financial account to ensure it is accepted?
From there, invite your parents to discuss their financial lives. It’s much easier to have a rough map of their financial life rather than scramble in an emergency to try to understand it.
I’ll leave you with one question to act on.
When will you discuss a DPOA with your parents?
