If your parents come to you requesting financial help — or you know they need it, though they haven’t asked — it might be tempting to say yes immediately.
When it comes to finances, however, this is a “put your own oxygen mask on first” situation: You’ll need to get your own financial house in order to properly assess if you actually can help your parents, and how much.
“It’s easy to feel emotional pressure; you care about your parents, and caregiving can make us forget about our own needs,” says Jennifer Raess, advice integration lead consultant at Northwestern Mutual. “But you need to take care of yourself, too.”
Here’s how to determine how much money you can give your parents without sacrificing your own financial security.
Assess your finances
This is a great time to take a look at your budget, as well as whether your finances are properly protected.
“This is your time to say, ‘OK, where am I at? Am I covered with life insurance, disability coverage, retirement? Am I saving enough for an emergency fund? Do I have too many debts?’” Raess says. “If there are holes in those categories, you have to get those set up first before you can think about how to share that money.”
One guideline for budgeting is to set aside 60 percent of your take-home pay for essentials, 20 percent for savings and investing, and 20 percent for discretionary spending. Seeing what's available after you have all your bills, goals and personal spending covered can help you assess how much you might be able to give or lend your parents.
Look into government programs for your parents
For parents in a cash crunch, government programs on both the national and state level may be able to help offset expenses for housing or health care, or help provide supplemental income and more.
These programs will likely be based on either income or age. The most well-known include Medicare, which provides health insurance primarily for those over 65 regardless of income, and Medicaid, which provides health insurance coverage specifically for eligible low-income people and/or those with disabilities. The government will look at your parents’ income and assets, sometimes dating back several years, to assess their eligibility. Any cash help you provide counts toward their assets, so you’ll want to be careful not to make them ineligible.
“Medicaid eligibility rules vary by program and by state, so it’s always a good idea to contact the program distributor to make sure you understand exactly where your parents stand,” Raess says, adding that it’s also helpful to talk to an expert like a financial advisor and elder-law attorney to ensure you’re maximizing all the aid available to your parents.
It’s also a good idea to check with your state’s agency on aging to see what local resources are available to help with food, housing, employment or other types of aid.
Beyond aid eligibility, you’ll also need to consider the tax implications of your gifts to your parents if they exceed a certain amount. IRS rules for 2021 allow you to gift up to $15,000 in assets or cash per recipient each year (double for married couples filing jointly) without it counting toward your lifetime gift-tax exemption amount. However, if you are helping to cover qualified medical expenses directly for your parents, these costs may not count as gifts. Talk to a tax advisor to see what qualifies and what doesn’t.
Set up rules for financial help
When parents ask for financial help, it’s important to be clear about what, exactly, they’re asking for and what you’re able to offer. Is this a one-time payment, or monthly help? Is it a free-and-clear gift, or a loan that’s expected to be paid back? If it’s a loan, when will it be paid back, and will it include interest?
“Especially when it’s money and family, the more clarity you can have around expectations the better,” Raess says. “While it may feel a little uncomfortable, these conversations are really important to have up front so no one is surprised later.”
Be honest with yourself, too. If you can’t swing it with your budget, you believe aid programs would better help your parents, or you aren’t comfortable with the proposed structure — or any other reason — remember that you’re within your rights to decline your parents’ request.
“It is definitely OK to say no,” Raess says. “And of course, it might not feel very good in the moment to say that. But if giving your parents money doesn’t work for your financial situation or just doesn’t feel right, it’s best for everyone involved if you’re up front about it.”