Don't Forget to Say Please

How can I go about gaining control of my sick mother's investment portfolio?

It doesn't sound like your mother is doing such a bad job of managing her finances. In this volatile market, certificates of deposit are an attractive investment for someone in her 80s. Had she been invested in more aggressive stocks during the past couple of years, she'd have lost a big chunk of her savings. Of course, those CDs will eventually reach maturity and she'll need to reinvest her principal. Whether or not you can legally play money manager is, in most cases, up to your mother to decide.

Other than being a joint account holder, the only way to take control of someone else's investment portfolio or make legal decisions is to be granted durable power of attorney, says Charles Sabatino, assistant director of the American Bar Association Commission on Law and Aging. The way this usually works is that an aging parent chooses a trusted child, friend or professional to act as his or her agent after a physician deems the parent mentally incapacitated. "The caveat is that this is a voluntary tool that the parent can revoke at any time," Sabatino says.

Decisions regarding power of attorney are usually made during the estate-planning process. (For more on estate planning, click here). This legal designation can be quite broad, giving the agent full decision-making power over all of the principal's financial affairs. But depending on how the paperwork is drawn up, it can also be quite limited, with clear specifications for how money is to be invested and spent. For example, if a mother wants 24-hour home health care, a child can't decide to place her in a nursing home to save a few bucks.

If the parent has someone he or she can trust, a power-of-attorney document can be an excellent tool, says Sally Hurme, an attorney with AARP Consumer Protection. But it can also be a nightmare, she warns, since the document gives the agent, in this case the child, a virtual blank check.

Things can get tricky if a parent starts to exhibit, say, advanced signs dementia and hasn't yet signed over power of attorney. In this case, the only way to gain access to the parent's bank and brokerage accounts is to be declared legal guardian in a court of law. This is an expensive and complicated process often involving court-appointed social workers and physicians. And as one can imagine it can cause quite a bit of animosity among family members.

Assuming the person in question is still fairly competent, our recommendation is to suggest the parent speak with a trusted financial adviser. This will help ensure that he or she doesn't fall prey to unscrupulous stockbrokers, telemarketers or other scam artists that often take advantage of the elderly. The right financial planner should be able to assess the parent's immediate monetary needs and suggest ways to invest his or her money in a manner appropriate for an octogenarian. (For more on how to find a financial planner, read our story.)

While everyone's situation is different, it's important to remember that an 81-year-old shouldn't invest like a 55-year-old. An elderly person should set aside in cash and fixed-income five year's worth of living expenses, including nursing-home or home-health-care fees even if the person isn't currently using such services, says Elaine Bedel, an Indianapolis-based certified financial planner. Only funds in excess of this baseline amount should be invested in financial instruments.

Originally published on October 16, 2002.