Time for the Talk? 5 Steps for Managing Your Parents' Finances
November 19, 2014 | Home and Family
There were little warning signs that something wasn’t right, like the time Carole Jacobs’ 61-year old mother sent her two identical birthday cards, each containing a check for $100. Or when her mom forgot to pay her property taxes—the first time she had ever missed paying a bill since Jacobs’ father had passed away 15 years earlier. “When I saw a late notice sitting on my mother’s kitchen counter, I realized we had a problem. My mom had always been on top of her finances, so the mistake seemed especially worrisome.”
What happened next was a life-changer for everyone in the family. Jacobs moved her mom into her home and took control of her mother’s medical and financial affairs, a job for which she found herself unprepared. “It took months to sort through her bills and to figure out what my mom owed and what she had coming in from her investments and the small pension she had from my dad. It took even longer to discover where she had tucked away all her savings.”
Jacobs’ story isn’t all that unusual. Today, many Americans find themselves having to take charge of their parents’ finances, often during a crisis and often with little knowledge of their parents’ financial affairs. Sure, it can be an uncomfortable role reversal to step in, emotionally and financially, but the best way to avoid problems later on is to plan ahead today.
Here are five things you can do now to prepare.
1. Have the “talk.” Discussing money with your parents can be uncomfortable, especially if your parents have always been private about the topic. Nonetheless, it is vital to open the lines of communication as early as possible, ideally before a parent’s health or mental state requires you to. Certain life events, such as impending retirement or the death of a spouse, can provide an opportunity to discuss the topic. One way to get around the awkwardness, according to Jacobs, is to start the conversation by sharing your own situation.
If you have brothers and/or sisters, bring everyone to the table to ensure each of you gets the same information. If that’s not feasible, keep detailed records of every check you write or transaction you make, and be sure to provide regular written updates to family members. This can go a long way toward preventing tension and avoiding blow-ups down the road.
2. Make a list. Ideally, you want to have as much information about your parents’ finances as possible. Sit down with your parents and suggest that you create a financial “road map” together that details the location of their important papers (wills, trusts, powers of attorney, deeds, titles and other documents) and safe deposit boxes; their contact information for key advisors (attorney, accountant, financial representative); and the location of their bank and investment accounts and insurance policies, including online accounts and passwords.
Even if your parents don’t want to tell you how much money they have, it’s important to know where to find it in an emergency. “By the time we realized my mom needed help, her memory was already failing,” said Jacobs. “Fortunately, we were able to locate her tax returns. We used the Schedule B form, which listed her investment income and related financial institutions, to piece together some of her financial information.”
3. Power up. Make sure that your parents’ wills and any trusts are up to date and reflect your parents’ wishes. If your parents don’t have financial and health care powers of attorney, now is the time to have these important documents drawn up.
A financial power of attorney gives you the right to act legally on your parent’s behalf and enables you to handle any financial transaction, from signing checks to selling your parents’ home. A financial or health care power of attorney should conform to the laws of the state where your parents live (or states, if your parents divide their time between two places). As a result, you may want to consider hiring an attorney who specializes in either estate planning or elder law for help. Don’t put this off; for a power of attorney to be valid, your parent must be competent when he or she signs it. You can search for an elder-law attorney who practices where your parents live at www.naela.org.
4. Simplify, simplify. If you see that your parents are becoming less adept at handling their financial affairs, suggest putting as many of their regular transactions on autopilot as possible. For example, help them set up online banking. Then arrange to have any checks that come in regularly, such as pension benefits and dividends, deposited directly into your parents’ bank account (Social Security does this automatically). Do the same for any ongoing bills so that utilities, car payments and cable, for example, will be automatically debited. To save confusion, ask your parents’ permission to consolidate their bank accounts if they have more than one. Do the same for any investment and/or retirement accounts they have. The goal is to minimize the number of statements and financial institutions that you and your folks need to interact with.
5. Seek help before you need it. It’s easy to ignore the warning signs that your parents may be getting overwhelmed. However, if your parents’ health is deteriorating, seek expert advice sooner rather than later. Financial professionals, tax accountants and elder-law attorneys can help you avoid often expensive financial mistakes. They can also help you decide how best to preserve your parents’ assets to help ensure their money lasts as long as they need it to. Equally important, a trusted advisor may be able to put to rest any questions family members may have that you’re doing all you can to maximize your parents’ estate.
If you have aging parents, don’t wait for them to ask you for help. Many parents would rather suffer than become a burden to their children. If you see signs that your parents are having problems, ask if they need help with their finances, but do so in a way that preserves their dignity.
“Initially, I was uncomfortable making financial decisions for my mom. But after a time, I could see how relieved she was to have help,” said Jacobs. “This gave me confidence that I could act in her best interests. After all, my mom was there for me when I was young and couldn’t help myself. I couldn’t ignore it when she needed my help in return.”