11 Strategies for Managing Your Parents' Finances
It's their money, but as a caregiver you need to know how much they have, where it is and who has control over it.
By the time Mim King started asking questions about her parents' finances, they had already been bilked out of over $100,000 over a 10-year period by a trusted family member.
"It took about two years to sort it all out and stop the bleeding," says King, of Lexington, Ky. "We had to find out what the damage was, and we had to figure out a solution."
That solution included King getting her parents, in their 80s at the time, to agree to give her power of attorney over their finances. She then closed the 35 credit card accounts she discovered had been opened in her parents' names. She shuttered unnecessary bank accounts too and now, using online access, she can regularly monitor her mother's checking and savings accounts (her father has since passed away).
"That way I can watch to make sure the gardener isn't telling her the bill should be $300 when I know it should only be $100"
King, one of five siblings, was named power of attorney because it's related to what she does for a living -- she's a daily money manager. She sees the irony in the fact that it took her as long as it did to realize what was happening to her own parents. But at the same time she's not surprised, because the money talk is among the most difficult ones to have with your parents. Often it's a privacy issue -- their money is their business, and talking about it threatens your parents' sense of independence. But also, says Carmen Wong Ulrich, author of The Real Cost of Living, they might have gotten themselves into some credit trouble that they're ashamed to talk about.
"Adult children are discovering debt that they didn't know their parents had," says Ulrich. This includes credit card debt, home equity loans and reverse mortgages. If this is an issue, consider consulting with a non-profit credit counselor who can help negotiate your balances with the lender and come up with a manageable payment plan. Ulrich recommends The National Foundation for Credit Counseling, a nonprofit nationwide network of agencies that provide credit management classes, help you create a debt management plan and offer confidential budget, credit and debt counseling.
Ideally, the money talk will occur long before credit counseling is necessary. Here's advice on how to broach the topic, what to ask about and how to prepare for your parents' future financial and legal needs.
1. Talk Early
The money talk is a tricky one to have with your parents. After all, "you don't want to cross the line and make your parents feel like your child," says Ulrich. There is no exact age when you should have this conversation, but the earlier you start it the better, says Ulrich. Getting affairs in order can take just a couple of hours with a small estate or months if they have multiple accounts, says Ulrich. The earlier you get a handle on your parents' finances, the better you can protect them against financial fraud and other money-related missteps, as well as ensure their future needs and desires are met.
Certain life events, such as impending retirement, can provide an opportunity to broach the topic. Ask how their investments are going, ask if they've paid off their mortgage or if they have a pension. Also look for signs of trouble: complaints about paying bills, not answering the phone for fear of collection calls or drastic money-saving changes to their lifestyle.
2. Call a Meeting
Bring parents and siblings together to talk about where the money is, where the will is, what type of insurance they have and how they'd pay for assisted living or other long-term care were they ever to need it. Bringing everyone to the table ensures everyone gets the same information. Start by choosing someone to speak with the senior one-on-one if it's a sensitive topic. Who would be best to broach the subject? Then have the bigger meeting when the senior is on board.
"Even if your parents' mental state is compromised, don't assume that they can't have input anymore," says Stehle. "Even people with moderate dementia can still express their wishes."
3. Invite a Third party
A financial planner, elder law attorney or geriatric care manager can dispel some of the tension around this topic. "It's human nature to be able to open up to a stranger," says Susan Fleischer, President of the National Association of Professional Geriatric Care Managers. "And so parents think, 'You're my daughter. You're not the one that I'm going to accept the recommendations from'." An elder law attorney or financial planner may have valuable recommendations and insights about your parent's planning specific to your state.
4. Check in on Wills and Trusts
Make sure that your parents not only have a will, trust and living will, but check that these have been updated, you know where they are and you have access to them. The will outlines who will administer the estate and who will inherit certain assets. A trust sets out how other funds, such 401Ks and IRAs, will be distributed. A living will is a statement of your parents' wishes for their health care in case they are unable to make decisions on their own. It, along with a health care proxy or medical power of attorney, also names the person (usually a spouse or adult child) who will make those decisions (here are some tips for creating your senior care team) An elder lawyer can help with the paperwork. (Search for an Elder Law Attorney near your family.)
5. Pick a Power of Attorney
Power of attorney gives you (or more than one person, if your parents wish) power over your parent's legal and financial matters. In choosing who will assume this role, select the person who has the time to sort through accounts, insurance policies and balance sheets as necessary. "Whoever is named power of attorney must be held to a higher standard because they have to ensure that any action on the financial end is in the person's best interest," says Michael Amoruso, an elder lawyer in Rye Brook, N.Y., who also serves on the board of directors of the National Academy of Elder Law Attorneys."They must be very much involved in the life of the elder."
6. Stop the Hemorrhaging
Are your parents' life insurance policies bigger than what they need for the current stage of their lives? Lower it. Search credit card statements for recurring fees -- magazine subscriptions or memberships -- that are unnecessary and automatically renew.
7. Analyze Investment Accounts
If your parent is over age 70, only about 30 percent of their portfolio should be in stocks. The rest should be in corporate and government bonds, says Ulrich. "Having too much exposed to the market is very dangerous when you're in retirement," she says. "You don't have enough of a timeframe to make up the losses."
8. Look for Warning Signs
And if you see any signs of dementia, "that's a warning sign that you need to step in," Ulrich says. Often with memory loss ailments, financial missteps are the first signs, says Mary Stehle, LCSW, senior care advisor for Care.com. "Are stacks of bills piling up in the house?" she asks. "Are they having trouble counting change or balancing their checkbooks? Are they giving away a lot of money? These could be signs of dementia or of some other illness."
Have your parent evaluated by their doctor. If they do have dementia it will be time to talk about executing that power of attorney and taking a close look at your parents' finances. Have they mentioned looking into a reverse mortgage, selling gold or other financial offers heavily marketed to older adults? When you visit, take a look in the fridge and cabinets and see how well stocked they are. These could be signs they're struggling financially, Ulrich says.
9. Transfer Assets Early
If your parents have a large nest egg, one way to get around estate taxes is for them to start giving gifts before they pass away, says Ulrich. Under current Internal Revenue Service law, your parents can give gifts of up to $26,000 each to one or more people tax-free each year. For grandchildren, they might consider opening a 529 plan that will put aside money for future college expenses.
10. Share Information
If you're the power of attorney, share what you learn with your brothers and sisters as well as your parents. This legal role gives you authority over their money, which also opens you up to extra scrutiny should anything go awry. Be transparent and you can head off any sibling squabbles.
11. Consider Hiring a Money Manager
Is this all too much for you to handle? A certified financial planner, accountant or daily money manager can sort through all these numbers, statements and policies for you and get a handle on what is going on and what needs to be done. This person can help you figure out how much your parent will need to sustain a comfortable life -- and for how long. Fees vary, with some advisors charging an hourly rate and others taking a percentage of the assets they are managing, usually around 1 percent says Ulrich. Be aware that advisors who take a percentage of the assets will have financial interest contingent on the advise they are providing.