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My Mom Has Dementia – 9 Steps To Protect Your Parents’ Assets During Mental Health Challenges

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Protect your parents' assetsAs our parents age and possibly face mental health challenges, their ability to manage financial affairs can diminish. This vulnerability makes them potential targets for financial abuse, fraud, and poor financial decisions that can deplete their life savings. Proactive steps are crucial to safeguard their assets, ensuring their financial security and peace of mind. This guide outlines nine essential actions to help you protect your parents’ assets during challenging times.

1. Understand Their Financial Situation

The first step to protect your parents’ assets is to fully understand their financial situation. This includes knowing the details of all their assets, such as bank accounts, investment accounts, real estate holdings, and personal property. Additionally, be aware of their liabilities, including any debts or recurring expenses. Gathering all relevant financial documents and compiling a comprehensive list will provide a clear overview of their finances and help in making informed decisions.

2. Legal Financial Planning

Consulting an attorney specialized in elder law is crucial for setting up legal mechanisms that protect your parents’ assets. This might involve setting up a durable power of attorney (POA), which lets a family member or friend manage financial affairs if your parents are unable to do so themselves. Other legal structures, such as trusts, can also be effective tools for managing and protecting assets. The attorney can also advise on the best legal structures to minimize taxes and maximize financial security.

3. Establish a Durable Power of Attorney

A durable power of attorney for finances is a legal document that grants a trusted individual the authority to handle financial decisions on behalf of your parents. Ensure this document is drafted while your parents are still capable of making decisions to avoid complications later. The appointed agent should be someone highly trustworthy and capable of handling financial responsibilities with integrity. They should also have a good understanding of your parents’ wishes and best interests.

4. Regularly Review Bank Statements

Keep an eye on your parents’ bank and credit card statements for unusual activity. Look for unauthorized withdrawals, unusual transactions, or any signs of financial exploitation. It’s also important to understand their spending habits, which can help in identifying any significant changes that might warrant further investigation. Setting up alerts for high-value transactions can also help monitor and protect their finances effectively.

5. Simplify Financial Accounts

If your parents have multiple bank accounts, investments, or credit cards, consider consolidating them. This reduces the complexity of their finances, making it easier to manage and monitor. It also reduces the risk of forgetting about certain assets or accounts. Choose institutions that offer robust security measures and fraud protection services.

6. Secure Important Documents

All critical financial documents should be stored securely in a fireproof safe, safe deposit box at a bank, or another secure location. Important documents include birth certificates, marriage certificates, social security cards, wills, deeds, and insurance policies. Proper storage prevents these documents from being lost, stolen, or damaged, which could complicate financial management and asset protection. It also ensures the documents are accessible when needed.

7. Monitor Credit Reports

Regular monitoring of your parents’ credit reports can help detect any unauthorized activities or accounts opened in their names, which are common signs of identity theft. You can obtain a free credit report from each of the three major credit reporting agencies once a year through AnnualCreditReport.com. This is a preventative measure to catch identity theft early, which can be particularly damaging to seniors. You can also encourage them to freeze their credit, which prevents creditors from accessing their credit reports and stops new accounts from being opened in their name.

8. Discuss Financial Decisions Openly

Maintain open lines of communication with your parents about their finances. Ensure they feel involved in the decision-making process as much as possible, respecting their independence. Discuss their wishes, goals, and preferences openly and make sure any financial decisions align with their long-term interests. This includes involving them in meetings with financial advisors or attorneys whenever feasible. This also includes discussing their plans with other family members to ensure everyone is informed and any actions taken are transparent.

9. Educate Them About Scams

Frequently discuss and educate your parents about potential scams, especially those targeting elderly individuals. This includes phone scams, mail fraud, and online phishing attacks. Empower them with information on how to recognize scams and stress the importance of not sharing personal information. Discussing the signs of scams and preventive measures can help them remain vigilant and protect themselves against potential fraudsters.

Ensuring Financial Integrity

To protect your parents’ assets in the face of mental health challenges is a profound responsibility that involves planning, vigilance, and a lot of heart. By implementing these steps, you help secure not just their financial resources but also their dignity and quality of life. Moving forward, continue to advocate for their needs, ensuring they are respected and protected as they navigate this phase of their lives. Remember, the goal is to manage their assets wisely and compassionately, keeping their best interests in mind.

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What Type of Assets Can Children Inherit?

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As you get ready to prepare a will and perhaps a trust, it’s important to know what type of assets can children inherit?  The simple answer is that if the children or grandchildren you want to leave money to are minors, there is little they can inherit outright at that age.  However, when they reach the age of majority, they are free to inherit everything you leave to them.  The questions then become, how early do you want them to receive the money once they reach majority and how much control do you want the custodian to have over their financial decisions.

What Type of Assets Can Children Inherit?

What Type of Assets Can Children Inherit?

Children can inherit whatever assets you would like to leave them after they reach the age of majority.  In general, if the child is still a minor, you can determine three ways they receive your assets.

A Will

What Type of Assets Can Children Inherit?
Photo by Wesley Tingey on Unsplash

The simplest (and cheapest) option is to just set up a will for your child.   You assign a custodian to raise your children.  However, the will must go through probate, and the court, not the custodian, will have control of the money until the children reach majority, which is 18 or 21 depending on the state you live in.  Then, the children are free to use the money as they see fit.

A Revocable Living Trust

When you set this up, all of your assets go into the revocable living trust, and you can use the money and assets as you like when you’re alive.  When you die, the revocable living trust seamlessly changes hands to the designated trustee.  You can give very clear terms for your trustee such as stipulating a child who is an alcoholic, drug addict or gambler will not receive the money.  Likewise, you could say that the child can have $15K a year from the trust.  Or you can say that the money must be used for college.

Then, the trustee just executes your terms.

An Irrevocable Trust

The last option is to set up an irrevocable trust.  If you chose this option, make sure you’re certain because an irrevocable trust is permanent.  If you put $500K in an irrevocable trust for your grandson, you can’t change your mind later because you no longer want him to have the money.  What is done is done.  However, like a revocable living trust, you can have a say in when the minor child will receive the money and how.

There are some benefits to this type of trust because it can lower your estate tax burden, and it can lower your assets if you need, for instance, nursing home care.

Final Thoughts

If you’re wondering what type of assets can children inherit, the simple answer is not much while they’re minors.  However, you can set up one of the three options above for your minor children.  Once they reach majority (for wills) or the age that you designate (for trusts), they can start receiving their inheritance.  While there are benefits to each of the three types, there are also drawbacks, so consider carefully which one to set up for both yourself and your minor children or grandchildren.

 

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