Planning Finances for Aging Parents
As life expectancy increases, more and more adult children may find themselves caring for their parents in their later years. In order to be loving and responsible caregivers, adult children will need to educate themselves and, above all, learn how to navigate the process with kindness, respect and a fair degree of organization.
If you have one or more parents who are getting on in years, you may already be thinking about how you will support them in the future. Perhaps you have contemplated moving closer to your parents (or vice versa) or looked into assisted living or caregiving options, but have you considered the current and future state of their finances? Even if you believe your parents are years away from needing your assistance, the sooner you start talking with them about their financial situation, the better chance they’ll have of achieving contentedness and stability in their later years.
Starting the Conversation
For reasons that are both generational and societal, aging parents are often reluctant to talk to their adult children about their personal finances. Indeed, who can blame them? After all, your parents supported you financially throughout your young life. In many ways, they’re responsible for the adult you are today. They may feel very reluctant to have the tables turned, where you are now attempting to help them with their finances. Perhaps your family is already at the stage where you need to assume power of attorney over one or more parents.
When engaging your parents, use language that is supportive and empowering. Let them know your goal is to help them participate as much as possible in decisions about their future, including their finances, not try to talk them into what they should or shouldn’t do. Listen to what they have to say, pay attention to their priorities and goals, and reassure them that you’re there to help.
Knowing When to Help
Ideally, adult children would begin financial discussions with their parents before any health (or financial) declines. Doing so is much more difficult when parents are ill, are beginning to show signs of diminished capacity or are experiencing a health crisis. However, proactive conversations aren’t always possible. Here are some telltale signs that it may be time to step in and offer some guidance:
1. Stacks of unopened mail. If mail is piling up in your parents’ home, it could be a sign that they’re neglecting their financial responsibilities. Keep an eye out in particular for unopened mail from credit card companies, mortgage lenders, utility companies, insurance companies and the IRS.
2. Unusual purchases or spending behavior. Are you noticing out-of-character purchases around the home, like new appliances, furniture, or entertainment items? These purchases present a good opportunity to start a conversation about their financial position, budgeting and longer-term planning.
3. Signs of elder fraud. Scams that target the aging population are alarmingly common. If your parents are receiving calls from “charitable” organizations you’ve never heard of or suddenly have new friends asking for loans, those are red flags. Similarly, if you find materials around the house pertaining to sweepstakes, lotteries, wealth seminars, or shady investment opportunities, keep close track of these items and how your parents talk about them.
4. Tax-related fraud. During tax season, be particularly aware of the potential for IRS and tax fraud. Let your parents know that the IRS will never call to demand money, contact law enforcement, or request debit or credit card numbers over the phone.
5. COVID-19 fraud. Most recently, fraudsters have taken advantage of the pandemic by selling bogus COVID-19 cures, charging unsuspecting consumers for the COVID vaccine or creating sham COVID-19-related charities. Make sure your parents know the vaccine is free, and talk to them about treatment scams so they’ll be prepared if they encounter this type of fraud. As above, encourage your parents to make any donations to organizations they know well. With luck, you can intervene before the scammers have had a chance to do any real damage.
Caring for Your Parents’ Finances: 8 Essential Tips
We have already discussed how important it is to treat your parents with empathy and respect when approaching them about their finances. Naturally, you should maintain that same approach throughout the entire process, whether you’ll be helping to manage their financial affairs, helping them find a financial adviser, or assuming power of attorney. The following tips can help you navigate the process more smoothly.
1. Ask the right questions.
Before you can help, you need to know exactly where your parents stand financially. Ask your parents if they have a will, life insurance, retirement savings, annuities, and/or any other important legal documents such as a power of attorney or revocable trust. Create a checklist and gather as much information as you can about their overall financial situation.
2. Locate financial documents.
Help to locate and organize important documents or take note of where they are kept. In addition to the items listed above, these may also include:
- Bank statements
- Brokerage or financial statements
- Records of loans or debts
- Birth and marriage certificates
- Medical and healthcare documents
- Medicare forms and cards
- Social Security documents
- Pension records
- Tax returns
- Mortgage documents
- Vehicle titles and registrations
- Property deeds
3. Get permission to access financial accounts.
If you intend to be hands-on, first make sure you have the proper permissions in place. For example, many adult children of aging parents obtain their parents’ permission to be listed on bank and brokerage accounts. Start gathering whatever tools, information, and permissions you’ll need to access financial and personal data. Do your best to also obtain contact names and related information. The information-gathering process can be time-consuming and you will want to keep your parents updated regarding where you are in the process and what you need from them.
4. Create (and automate) a monthly budget.
If your parents don’t have a budget or spending plan, now’s the perfect time to help them create one. If it makes sense for your parents’ particular situation and cash flow, set up auto-pay for recurring expenses to help simplify the budgeting process.
If you find any bills that are overdue or in collection, obviously you’ll want to prioritize those and take care of them as soon as possible. If your parents are carrying debt they can’t manage, you may need to speak to an attorney or certified credit counselor about options.
5. Talk about their next stage.
Are your parents considering downsizing their home or moving during their later years? Would they consider assisted living options, or would they be more comfortable with ’aging in place?’ What can they afford? Discuss these options with your parents, including the pros, cons, and associated costs of each. The more you know about their preferences, the better equipped you’ll be to help them achieve their goals.
6. Keep family informed.
Unless you’re the only family member in touch with your parents, it’s best to keep other close relatives in the know about your parents’ financial circumstances and your role in helping them manage their money and supporting their financial decisions. If possible, hold regular family meetings to keep siblings and other relatives up to date; doing so may help to alleviate any tension over the subject of family finances.
7. Know when to bring in a third party.
There are many reasons to engage the services of a financial or legal professional when managing your parents’ finances. Your parents may be reluctant to rely on you solely, and a neutral party can help bring expertise and perspective. Siblings or other family members may worry about your having too much control, and a professional can address those fears. Or you may simply feel unequipped to deal with such a weighty responsibility and need an expert to help you navigate the ins and outs of financial management. Just remember that there’s help available, and just like your parents, you don’t have to go it alone.
8. Finally, if your parents don’t currently have basic estate documents (e.g. a will, trust, power of attorney, healthcare proxy, POLST form) in place or have estate documents that may need updating, consider helping them address this important component of their broader estate plan. You don’t need to figure it out on your own. Your Howland Capital adviser can work with you and your parents to refer an estate attorney who can advise on estate planning, review old documents, and/or draft new ones. If their estate plan calls for an independent trustee, your Howland adviser can serve in this role or help to find a suitable person to fill it.
Not sure where to start? Consider talking to your Howland Capital adviser about how best to proceed. Chances are, they can help you prepare for – and if appropriate, participate in – difficult conversations, offer advice on overcoming roadblocks, and provide you with whatever resources and tips you need to get the ball rolling.