Your parents taught you everything you know about money. From opening your first checking account to taking out your first car loan, they were always there to guide you. But as your parents get older, they may begin turning to you for help with their finances. How do you begin to navigate this new reverse dynamic?
It’s not always easy. There are both practical and emotional challenges to consider before you step in and take over your parents’ financial situation. Let’s discuss a few of them.
Approaching the Conversation
If you’re hesitant to broach the topic of money with your parents, you’re certainly not alone. A recent study found that only 38% of Americans have talked to their parents about their current and future financial situation. In fact, nearly half of those surveyed would rather talk about funeral arrangements with their parents.1 It’s important to have these conversations – and it’s vital to have them before cognitive decline or a medical emergency occurs. Once cognition or health is impaired, things can become far more difficult for everyone to manage.
For any difficult conversation with someone you care about, it is best to lead with respect and empathy. Begin by emphasizing that you are there for them and that you will follow their lead. Don’t just swoop in and try to take over everything all at once. Instead, ask what they would like help with and take things step by step.
This might also be a good time to begin attending meetings with your parents’ financial advisor. Some adult children are hesitant to ask to join these meetings, but let me reassure you that a good advisor will welcome your participation. They can even help to mediate some of the tougher topics you are hesitant to bring up with your parents. They may have been in a meeting like this before and can provide solutions to common problematic situations.
Assessing Their Financial Situation
Your first task should be gathering information about all of your parents’ financial accounts and holdings. I suggest putting together a folio file that you can store somewhere that is both safe and easy to access. Information you’ll want to document includes:
- Bank accounts
- Investments
- Retirement accounts
- Estate planning documents (wills, trusts, etc.)
- Insurance policies
- Mortgage and other loans
- Deeds, property titles, and other valuables
- Safe deposit box locations, numbers and keys
- Records of digital assets like online accounts
- Location of any cash or family heirlooms in the house
- It’s also a good idea to gather all of your parents’ personal information, such as:
- Social Security numbers
- Birthdates
- Driver’s license numbers
- Medicare/Medicaid numbers
- Veterans ID numbers
Keep these numbers somewhere safe that you can access easily, since you may need to use them regularly.
Gathering the Appropriate Legal Documents
In order to have legal authority to step in and help your parents make decisions about their finances, you’ll need to have a few essential legal documents in place. In addition to the usual wills, trusts and other estate planning documents, you’ll want to consider the following items:
- Power of attorney – This is a vital document to have in place, as it allows you to access your parents’ financial accounts and make financial transactions and decisions on their behalf. But note, in order for a power of attorney (POA) document to be valid, it must be signed by your parents while they are still mentally competent.
- Court-appointed conservatorship/guardianship – In the case that one of your parents is incapacitated or no longer mentally competent and you have not been named POA, you will need to petition the court for this form of legal representation.
- Healthcare power of attorney/advance directives – A healthcare POA allows you to make healthcare decisions for your parents when they are unable, and the advanced directive allows your parents to dictate what kind of end-of-life medical care they want to receive if they are in a coma, persistent vegetative state or other medical emergency.
Once you get a POA or similar document in place, you’ll need to notify your parents’ financial institutions. Note that some institutions are reluctant to accept older POA documents and may require additional paperwork. You will also need to notify the appropriate government agencies and fill out any necessary forms before you can manage your parents’ benefits. These agencies may include the Medicare/Medicaid offices, the Social Security Administration, and Veterans Affairs.
Simplifying and Managing Financial Tasks
Next, you’ll want to assess your parents’ household income and expenses. Go over their monthly budget and find out if there are any areas they might need to cut back on. Also, keep track of what needs to be paid and when, and think about setting up autopay whenever it’s available to ensure nothing goes unpaid. This is particularly important when managing things like life insurance policies because once the grace period is missed, the policy will lapse and coverage will end.
Even if your parents aren’t ready for you to fully take over their checkbooks, it is a good idea to check their accounts occasionally for signs of fraud or financial abuse. Look for unusual purchases, large withdrawals or transfers, and any other suspicious activity. If you do suspect your parents have fallen victim to scammers, contact their financial institutions right away.
Many financial institutions are asking for trusted contacts to help manage their relationship with customers. A trusted contact is someone the financial institution can contact if they are having difficulty contacting their client. The trusted contact allows the financial institution to reach out to the trusted contact to help resolve any issues related to the account or relationship.
Implementing Support Systems
Helping aging parents with their finances can be a stressful – and sometimes thankless – job. It’s important to think about having a support system in place for your parents as well as for yourself.
You don’t have to go it alone. Involve other family members or a trusted family friend in the process. You can also reach out to community organizations for assistance, when needed. And don’t forget to prioritize your own self-care and financial needs. After all, you won’t be much help to your parents if you burn yourself out trying to do everything for everyone.
And finally, reach out to a professional for help. Financial advisors work with families in these situations all the time and can provide much-needed advice based on your unique situation.
1 Wells Fargo & Company, “Survey: Financial Planning & Preparedness of Americans with Parents Entering Retirement,” 2022. https://stories.wf.com/wp-content/uploads/2022/12/Wells-Fargo-Financial-Planning-Survey-Report.pdf
