As parents get older, they may eventually reach the point where they can no longer manage their finances themselves. This raises the question: What should be your role in helping your parents manage their finances when they reach this stage?
It can be a touchy subject, for sure. Your parents are probably used to a great deal of independence, including in the area of financial management. So it might be difficult to bring the subject up without feeling like you’re infringing on their privacy.
Discuss It Sooner Rather Than Later
The key is talking about this scenario before it actually becomes a reality. Nobody likes to think about the possibility of not being able to handle things they take for granted now — whether it’s balancing the checkbook or performing routine chores like shopping and housework. But discussing and planning for this in advance will make the transition easier if the scenario ever actually arises.
You could start the conversation by simply asking your parents if they have ever thought about what would happen if they were no longer able to manage their personal finances. If they have, you can start talking about the best way to deal with the situation should it ever arise. If they haven’t, asking the question could serve as a door-opener to beginning the conversation.
Don’t feel like you have to cover everything at once, either. Start off slowly — for example, your first conversation could cover things like how bills will be paid and the checkbook balanced if they can no longer perform these tasks. Then you could progress to more complex subjects like estate planning in future conversations.
Bring Yourself Up to Speed
The next step is to familiarize yourself with your parents’ financial situation. Ask them to prepare a list of all their financial accounts — including bank, investment and retirement accounts — and insurance policies, including life insurance and annuities. Also have them give you a list of all their financial obligations, including their home mortgage, car payments, credit card balances and other regularly recurring bills and expenses.
Your parents might understandably be hesitant to share these personal financial details with you. But if you don’t have access to this information, it will be difficult, if not almost impossible, for you to pay their bills and manage other financial details for them should this ever become necessary.
Also find out where their important financial and estate planning documents are stored and how you can access them. These include their last will and testament, life insurance and beneficiary forms, trust documents, letters of intent and durable powers of attorney, among others.
Talk About Control
In discussing management of your parents’ personal finances, it’s important to determine the level of control they want to retain over their finances and how this could evolve over time, as well as how they want their assets to be distributed after they die.
For example, let’s say you have one sibling and your parents want for their assets to be split evenly between you when they’re gone. Let’s also assume that you will be the one handling their personal finances when they become unable to do so. In this situation, it might seem to make sense to add yourself to their bank accounts as a joint account holder.
If you do this, however, the rights of survivorship might pass directly to you, giving you total control over the funds and locking your sibling out, at least legally. A better solution might be for your parents to name you as their financial power of attorney so you can pay their bills and handle other financial tasks. Their last will and testament, meanwhile, would designate that their assets should be divided evenly between you and your sibling.
Another solution is for your parents to set up a revocable or living trust. They would put all of their assets in the trust and appoint a successor trustee should they ever become unable to manage their finances themselves. When they die, their assets can then be passed on to their designated beneficiaries as dictated in the trust agreement and bypass the probate process.
Take A Team Approach
Be sure to include your parents’ financial advisor, estate planning attorney and any other members of their personal finance team in these conversations. These financial pros can bring a high level of expertise, along with the objective perspective of someone outside the family, to the situation.
Give us a call if you’d like to discuss your family’s situation in more detail.