Why Naming the Caregiver Adult Child (instead of your Spouse with Dementia) as Beneficiary of your IRA Can Backfire

It’s a situation many families face: a healthy parent wants to make sure their spouse with dementia is cared for if the healthy parent dies first. The instinct might be to name the caregiving adult child as the beneficiary of the IRA — trusting them to use the funds for the parent who needs care. But what seems simple can actually put both the money and the spouse with dementia at risk.

Naming the caregiver adult child as the beneficiary of the IRA beneficiary has three potential problems:

#1: Life happens. If the adult child inherits the IRA and then dies before their parent who has dementia, those funds don’t automatically flow back to the parent. They become part of the adult child’s estate. 

#2: Once the IRA is in the adult child’s name, it’s vulnerable to that child’s personal liabilities. A lawsuit against the child or a financial hardship could wipe out the money intended for the parent. 

#3: There’s no built-in accountability. Even with the best intentions, it’s easy to mix funds, lose track, or unintentionally use them for needs other than those of the parent.

If the parent with dementia executed a financial power of attorney while the parent still has capacity, naming the adult child as the agent, that power of attorney should enable the adult child to manage the parent’s IRA account in the child’s capacity as agent under the power of attorney.

To learn more about powers of attorney, check out this podcast: How Powers of Attorney Work, When to Use Them, and When it’s too Late to Get One

The easiest option isn’t always the safest one. Naming the caregiver child as the beneficiary may feel practical, but it often leaves too much to chance. 

Listen to the episode here: