We all like to think that we’ll always be able to take care of our own finances as we age, but unfortunately for many of us, this will not be the case. These 5 questions can help you put a plan in place in the event you do end up requiring someone to take over your finances.

by Rick Kahler

One area that few seniors prepare for is arranging for someone else to handle their financial affairs when they can no longer fully care for themselves. This is easy to put off for three primary reasons.

First, there are a lot of difficult emotions involved with the thought of losing our cognitive ability and the inherent freedom to financially care for ourselves. This is something we have done for ourselves all our lives, so it is very hard to imagine not being able to do so.

Second, for many of us, the loss of cognitive ability is slow and almost unrecognizable. There isn’t an urgency that suggests we need to do anything soon. Often by the time we do realize we need help, it’s too late for us to arrange for it.

Finally, while we’re in good health, we tend not to consider the possibility of a sudden catastrophic health event. Yet such a crisis can leave us without a plan and no way in which to have any say in what happens.

Fortunately, if you are reading this, you have time to prepare. The following information is based on the work of Carolyn McClanahan, MD, CFP, particularly a presentation given to the National Association of Personal Financial Advisors. She suggests the major questions to answer are:

1. Who will be in charge?
2. Are the right documents in place?
3. How will you monitor your decline?
4. Do you have a written investment policy?
5. How will the transition occur?

Who Will Be in Charge?

Choosing a trusted third party to take over bill paying, investment management, and financial caretaking is essential. Options include a spouse, a child or other relative, a friend, a professional bookkeeper, or a financial planner. For couples, the odds are that both partners won’t lose their ability to handle financial affairs at the same time. If one spouse handles most of the money matters, it’s important that the noninvolved spouse becomes involved in the bill paying routine and understands the basics of the couple’s finances. If you are the caretaking or surviving spouse, or if you are single, designating a financial caretaker is crucial.

Related: What a Spouse Should Know About Your Finances

Are the Right Documents in Place?

The most important document is your power of attorney that names the person or organization that will be in charge of your finances. If the bulk of your net worth is in retirement accounts, annuities, and jointly owned, another option is to create a living trust, place everything you own individually in it, and identify the successor trustee who is in charge when you can no longer make decisions.

How Will You Monitor Your Decline?

It’s important to have some written agreement in place (even if for no one but yourself) that lists the triggering events that will indicate to you the time has come to transfer the control to someone else. It’s up to you to determine what these triggers are and to self-assess every few years.

Do You Have a Written Investment Policy? And Is It Current?

This is a good time to review your investment policy, making sure it’s been updated to reflect your changing cash flow needs and asset allocation. You might also evaluate your ownership of any complicated and illiquid assets like real estate or closely held business interests. It may be wise to simplify and liquidate them while you’re still capable of managing them, before it’s time to pass responsibility to a surrogate.

Once you’ve answered these four questions, it’s time to consider the last step and that is how the transition should take place.

• Legal Documents You Need In Your 50s
• What Is a Living Will?
• Trust Basics for Retirees

Reviewed September 2024

About the Author

Rick Kahler, MSFP, ChFC, CFP, is a fee-only financial planner and author. Find more information at KahlerFinancial.com. Contact him at [email protected].