Managing your parents finances

How to manage parents finances

It can be tricky discussing finances with your ageing parents, but it’s vitally important to have some sort of plan in place for if they become incapacitated and are unable to manage their own affairs. What are the considerations when thinking of how to manage parents finances?

First appeared in Estate Living

Managing parents finances if they are incapacitated

Most people think that having Power of Attorney on your parents’ accounts is sufficient, but this unfortunately falls away and is not legal if the affected individual becomes incapacitated. This means that you can manage your Moms affairs while she is mentally capable but physically frail. However, at the point where she starts showing signs of loss of mental capacity, the Power of Attorney lines are blurred, and things could start becoming problematic.

There are only two legally sound options for families to deal with this situation, one of which would need to be set in place prior to any signs of mental impairment. A third option exists but is open to abuse.

Appointing a Curator Bonis

As complicated as the name may sound, the legal process is even more so! And unfortunately, costly too. The process has to be completed with the assistance of an attorney and will involve medical reports, affidavits, proof of income and expenses, and will end up in the High Court.

The process is complex but is unfortunately the only legal way to proceed should you need to manage the financial affairs of someone who is already mentally incapacitated.

In this scenario there may be several months where you would need to care for your parents with your own money before being able to access their funds.

A Special Trust

Another option which is available for managing your parents finances, but which would need to be in place as soon as possible, is a Special Trust. Although similar to a family trust, a Special Trust is a trust created for the sole benefit of one or more persons with a disability; of which mental impairment is included in the definition.

If you created such a trust now in preparation for your parents, they would need to donate assets to the trust over the upcoming years (in consultation with a professional trustee and tax consultant). The benefit is obviously that the trustees have a legal obligation to manage the trust for the benefit of the incapacitated individual(s), even if you aren’t a trustee.

The trust will cease to be a trust on the final demise of the beneficiaries so even if your parents do not end up suffering with mental impairment, the assets in the trust will ultimately form part of their estate or be distributed in accordance to the Trust Deed.

A family solution for managing parents finances

A final solution is available but is open to abuse and is not recommended. Some families do however manage the finances themselves by requesting a lumpsum donation from their ageing parents and then manage this via a family agreement. In order to avoid taxation of the donations, they would need to be limited to R100,000 per tax year.

It is important to note that there is no legal backing should the money be used for any purpose other than the intended one and your parents could be left high and dry. 

Open and honest discussion is key to this solution working, as well as absolute trust of the family members left with the responsibility of managing the funds. If you plan to go this route, or are already in such a situation, be sure to think carefully about the possible consequences should the trust is abused.

Also remember to account for the funds via a specific clause in your Will to ensure the continued care of your parents.

Closing thoughts

When looking at how to legally take over parents finances, it’s best to have the discussions early. Involve legal experts and pay the necessary costs to have it done properly. This could save money and anxiety in the future.

Please share your thoughts