Not enough people ask ahead of time but I am seeing lots of people that are getting into trouble with this issue.
When you assume the duties as an agent under a Power of Attorney, you are a fiduciary. That means that you are just like a bank or a stock broker – a position of trust. You have a duty to accurately account for every single penny in the account – not guesstimates – actual numbers backed up with receipts.
Often, when children assume this duty for one or both of their parents, they treat it somewhat casually – after all, it’s just mom or dad’s money – all family. WRONG. You owe the same duty to them that the bank does.
It is not okay to borrow money from their account with the intention of paying it back. I know that many convince themselves that this makes perfectly good sense – why go to a bank to borrow money when you are short? Mom or dad has thousands, and, it is only for a little while, just until you get your cash flow straightened out.
Would it be okay for your financial advisor to just “borrow” money from your account if he or she were short? How would you feel? Well, the same thing applies to you and your duty as mom or dad’s agent.
This means that it is not okay to withdraw cash and pay for your stuff and their stuff at the same time. Their money must be separate and their groceries and toiletries get paid for separately. Keep these receipts even if you throw away the ones for your personal purchases.
But, aren’t you spending your time and effort in caring for mom or dad? Aren’t you using your gas and your car? Yes. If you would like to be reimbursed for this, it has to be done appropriately. Keep track of the time you spend each month and the number of miles you drive and then charge for it (reasonable charges). Keep the log as back-up in case you are questioned.
It is not okay to write out checks to your family as gifts from mom or dad, because they would be okay with it. If your parent had an annual gifting program in which he or she gave a certain amount to children or grandchildren annually, that is one set of facts. If you are starting up a gifting program using your parents’ money, it is not appropriate.
Where do I see this? Doing probate estates and trust administration when people pass away. The Personal Representative (who is often the same person as the agent under the Power of Attorney) or the Successor Trustee must account for what the decedent had at the moment of their death. Then they account for where it goes (bills) and it gets divided and distributed.
When the Personal Representative or Trustee assembles the initial accounting of what mom or dad had, the other members of the family want to know how they came up with that amount. Usually, family members thought there was more money – a lot more money – and they want to know where it went.
If you have kept accurate records, it is easy to demonstrate that all of the monies spent were appropriate and for mom or dad’s care only. If you haven’t kept track, it will be a nightmare to reconstruct – especially if you took cash out of the account to pay for things. If you cannot account for the money, you may be required to reimburse mom or dad’s estate.
Avoid creating a family feud or adding fuel to the family feud fire. Keep accurate records and treat your parents’ money the same way the bank would.