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At some point, you may need to become involved with your aging parents’ care, which might include managing your parents’ finances. Taking control of elderly parents’ finances can be a sensitive issue that needs to be done with a great deal of care, patience, and honest communication.
Your loved ones’ finances can be complicated by a number of issues, including the cost of any care they might need. According to the most recent estimates by A Place for Mom, the median cost of an in-home health aid is $6,292 per month, and an assisted living facility can run around $5,419 per month on average, depending on where you live.
While healthcare costs will likely only continue to climb, seniors are typically living on a fixed income. This makes careful money management particularly important for older adults. Read on for a checklist for taking over parents’ finances to find out what you can do to help your parents manage their money and ensure they don’t outlive their funds.
Key Points
• To manage elderly parent’s finances, it’s a good idea to offer your help gradually and to keep the communication clear, open, and honest.
• Locate and organize parents’ important financial and legal documents such as bank statements, wills, mortgages, retirement accounts, and insurance documents.
• Consider getting power of attorney (POA) while your parents are mentally competent enough to grant it to you so you can take over financial and legal matters if they are unable to handle them.
• Monitor your parents’ accounts for suspicious activity and elder fraud, which is a growing problem in the U.S.
• Consider consulting a financial planning professional to help with your parents’ finances, such as a fiduciary financial advisor who is legally obligated to give advice and provide management with their clients’ best interests in mind.
A 10-Step Checklist for Managing Your Parents’ Finances
Figuring out financial planning for elderly parents — without putting a strain on your relationship — requires a bit of a learning curve. Here are some tips that can help ease the process.
1. Start Conversations Early and Make Gradual Changes
It can be a good idea to offer help in small, gradual steps in the beginning. You may want to sit with your parents while they plan how to live on a budget or offer to set up automatic bill pay with them.
If they don’t yet have a will, you could offer to help them as they decide which type of will to draw up. Or perhaps they want to set up a trust. You could be a sounding board for them as they work through these matters.
If you need to offer financial support, consider starting small, such as paying for prescription medications. Ideally, you’ll want to give as much independence to your parents as they can handle.
There may come a time where you need to make changes that will affect their lives. If you need to switch care providers, for example, it can disrupt their routine and expectations. To make the adjustment process easier, you’ll want to communicate any changes early, often, and honestly.
2. Locate and Organize Important Financial Documents
It can be very helpful to create a document that lists all of your loved ones’ financial and legal documents, including where they are located, along with contact information for any professionals they use, such as doctors, lawyers, and accountants.
Some documents you may want to look for include:
• Bank statements, including those from joint bank accounts
• Mortgage statements
• 401K, IRA, stock certificates, or pension records
• Income tax records
• Property deeds
• Outstanding loans
• Automobile registration and insurance
• Homeowners insurance
• Health insurance
• Life and disability insurance
• Passport, driver’s license, and social security information
• Birth and marriage certificates, divorce decree
• Contact info for doctor, lawyer, investment banker, accountant, clergy, etc.
• Military service records
• Medical papers, such as advance directives, DNR
• Final wishes regarding burial arrangements, cemetery, and funeral home
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3. Secure Legal Authority (Power of Attorney and Trusts)
When managing parents’ finances, power of attorney (POA) is an important thing to consider. POA is a formal legal designation that gives you authority over your parents’ finances as well as their legal matters. Your parents need to grant you POA while they are considered mentally competent to make such a major decision, so it’s something you should discuss early on with them.
There are temporary and permanent types of POA, and your parents can opt for what they feel comfortable with. You and they can consult with an eldercare attorney about the different options and to help you through the process if you choose to go ahead with it.
4. Create a Comprehensive Budget for Elderly Parents
Budgeting for elderly parents is similar to budgeting for yourself, except that the budget line items and amounts will likely look different from your own. Retirees may also have significantly less income coming in than when they were employed. There are different types of budgeting methods, so you can pick one that works best for your parents’ situation.
When helping them make a budget, here are some monthly budgeting categories you may want to include:
• Mortgage or rent
• Utilities
• Credit card payments
• Health insurance payments
• Phone bills
• Medical bills
• Food
• Transportation
5. Simplify Finances with Automatic Bill Payments
Automatic bill payments can be a big help when it comes to taking control of elderly parents’ finances. If you’re handing the payments, auto pay will eliminate the mental energy and time it would take for you to pay another set of bills each month. Plus, you’ll worry less about things like having their utilities unexpectedly cut off or their insurance canceled.
You can set up automatic payments to have money taken from your parents checking account so that their bills are paid on time and consistently each month.
6. Explore Senior Assistance Programs and Health Care Options
When managing parents’ finances, it can be wise to look for senior programs in your area. Not only can they be a tremendous relief on the budget, but they can also enhance the quality of life for your elderly parents.
They may be able to qualify for housing, food, or energy assistance. Eldercare services can also include transportation, meals, health insurance counseling, caregiver support, and in-home services You can learn about programs in your area at Eldercare.gov.
As for health care, Medicare, the healthcare insurance program for those age 65 and up, isn’t as simple as you might expect. There are four parts of Medicare: Part A, Part B, Part C, and Part D. Each has their own benefits, deductibles, and copays. To browse Medicare options, you may want to take a look at Medicare.gov.
Depending on their financial situation, your parents may qualify for Medicaid (the public health insurance program for people with low income). In addition, you may want to look into supplemental health insurance, called Medigap (or Medicare Supplement Insurance). Medigap is sold by private companies and can help fill in “gaps” in Medicare, such as copays, coinsurance, and deductibles.
7. Audit Expenses and Reduce Unnecessary Costs
Be sensitive as you approach budget cuts with your parents. You may be able to see things that don’t make sense to pay for anymore, but your parents may view things differently. Keep communication lines open and respect their wishes as much as you can.
It can be helpful to become familiar with typical retirement expenses and how those might be lowered.
8. Keep Your Parents’ Finances Strictly Separate From Yours
Whatever help you’re able to give an aging parent, it can be a good idea to keep your finances separate from theirs. This is generally the easiest and most ethical way to keep a record of what is happening in your parents’ accounts.
When you’re in control of someone else’s finances, it puts you in the role of a fiduciary, which means you must act in their best interests, rather than your own. If you want to learn more about the different types of financial caregiving, you can look at the guides from the Consumer Financial Protection Bureau.
9. Monitor Accounts for Any Unusual Activity and Elder Fraud
Financial exploitation of elderly persons is on the rise. In the most recent year surveyed, financial institutions filed 155,415 suspicious activity reports related to elderly financial exploitation totaling approximately $27 billion in losses.
It’s concerning how often elderly persons’ are taken advantage of, especially when it comes to their finances. Being aware can help prevent financial abuse of an elderly parent. Some red flags you may want to watch out for:
• Large, frequent withdrawals
• ATM withdrawals that are not typical of your parent’s behavior
• Transfers between bank accounts your parent cannot explain
• Insufficient funds fees or unpaid bills
• Attempts to wire large sums of money
• A new friend accompanying them to the bank
• Suspicious or forged signatures on checks
• Reluctance to talk about transactions or shame surrounding their money
• Altered wills or trusts
If you suspect your parents have been the victim of financial exploitation, you can report it to their bank and ask for their help to investigate and stop it. Your town or state Adult Protective Services department may also be able to help. If you strongly suspect fraud, it’s also a good idea to notify your local police.
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10. Consult With Financial Planning Professionals
Helping your parents with their finances is an enormous undertaking. It can also be complicated, so you may want to speak with one or more financial planning professionals that can help you make the best decisions for your parents’ unique situation.
For example, you could look for a fiduciary financial advisor, which is a financial professional who has a legal obligation to manage finances and give advice with the clients’ best interests in mind. Be sure to ask about their credentials and experience, and make sure you and your parents feel comfortable with them before proceeding.
The Takeaway
Taking care of your elderly parents’ finances is a big step that often requires time, patience, sensitivity, and maintaining open and clear lines of communication. But it can be well worth the effort. By coming up with a financial plan and helping older loved ones better manage their income, savings, and spending, you can ensure that they live as well as possible during their golden years.
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FAQ
When should you start managing your elderly parents’ finances?
When to start managing your parents’ finances depends on their specific situation. In general, it’s best to start early on while they are in good cognitive health. Ask them to share their financial details and find out what their wishes are. Explain that you’re doing this because in the event they need help down the road, you want to make sure you will be following their wishes.
You’ll likely need to start slowly, so you may want to approach the topic gently and in stages. For example, you could start by offering to help them pay bills or set up automatic payments and then move on to other financial topics from there.
How do you take control of an elderly parent’s finances legally?
Taking control legally of an elderly parent’s finances typically involves getting a power of attorney (POA), which allows you to legally make decisions on their behalf. Your parents need to be mentally competent in order to give you POA, otherwise you will need to petition a court for a guardianship or conservatorship.
An alternative to a POA is a revocable living trust. This is when a parent transfers all their assets into a trust and names you as the successor trustee so that you can manage the assets if they are unable to.
What is the best way to track and manage a parent’s money?
To track and manage a parent’s money, first become familiar with their important financial documents such as bank statements, retirement accounts, brokerage accounts, mortgage, will or trust, and so on. Next, consider having your parents give you power of attorney so that you can make financial and legal decisions for them if they are unable to. Then, automate their finances, including bill paying for them; help them set up a budget using their monthly income and expenses; and monitor their accounts for any suspicious activity such as fraud.
Can adult children be held responsible for their parents’ debt?
Adult children are generally not responsible for their parents’ debt, such as credit card debt, a mortgage, or loans. However, if you cosigned a loan with your parents, you are responsible for repaying the debt if your parents can’t.
Additionally, some states have laws called filial responsibility laws that may require children to repay their parents’ debt. However, these laws tend to be used more sparingly today than they once were. If you’re concerned, you can check with a lawyer to find out if your parents’ state has filial responsibility laws and if so, what that might mean for you.
What are the most important items on a checklist for elderly parents’ finances?
The most important items on a checklist for elderly parents’ finances include finding and organizing your parents’ key financial and legal documents such as wills, trusts, and financial and investment accounts; helping your parents set up a budget; automating their bills to make sure they get paid; making sure they have the insurance coverage they need; monitoring their financial accounts for any suspicious activity or possible elder fraud; and getting power of attorney to legally manage their affairs if necessary.
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