If you wait too long to set up a plan to help manage your aging parents’ finances, you might encounter unnecessary problems down the line.
Talking about money can be uncomfortable, especially when you are having the conversation with loved ones or family members. However, as your parents age, we recommend having a conversation about their finances and who will manage their financial affairs if they become unable to do so.
Planning Will Make Everything Easier
Most children wait too long before discussing the management of their aging parents’ finances. After all, it can be hard to accept that they are getting older and may need help; and there’s no way to know how they will react to this sensitive subject. It’s no wonder procrastination becomes the path many folks choose.
Unfortunately, waiting can create unnecessary problems. For example, dementia becomes increasingly common as people age. And, unfortunately, people suffering from dementia are often suspicious, obstinate, and forgetful. If you think discussing finances is tough now, it will be much harder if your parent is suffering from dementia or another age-related ailment that renders them unable to manage their finances. In some cases, if a parent is unable or unwilling to have the “money conversation”, you may need court intervention. This can be costly, cause significant emotional distress, and potentially compromise your parents’ privacy, since court filings are public records.
Ideally, you and your parents should have the finances discussion while they can orchestrate a plan that works for everyone. For example, agreeing to sign a durable power of attorney designating an agent to manage financial affairs. A power of attorney that is “durable” continues throughout the incapacity of the parent who signed it. Importantly, some states allow a “standing” power of attorney, meaning the agent can act on financial affairs immediately. In other situations, the agent takes over upon showing incapacity of the parent, which is called a “springing” power of attorney.
Serving as an Agent or Trustee
In addition to a durable power of attorney, creating a living trust that designates a co-trustee or successor trustee may be recommended for when parents can no longer manage their finances. An experienced estate planning attorney can help put the appropriate paperwork in place depending on your parents’ specific economic circumstances.
Serving as an agent or a trustee for parents requires knowledge about the assets and liabilities within your parents’ estate. We recommend you ask your parents for a “snapshot” of their financial life. Taking a snapshot includes asking important questions so the agent/trustee can take over for the parent now or in the future. For example, where do they keep their financial records? What accounts do they have? What bills do they have? What is their annual income and where does it come from? Do they have a mortgage? Do they have investment accounts? Who are the key professionals they work with, i.e. financial advisor, attorney, accountant, insurance agent, etc. Do they have long-term care insurance? What passwords or other codes are needed to access these various accounts? Do they have a will and a healthcare power of attorney? Where are the key documents kept?
You can see why putting a plan in place while everyone is still healthy is critical. If you wait until they are incapacitated and cannot help, you may need to piece together their financial affairs from clues you find around their house—and that is not guaranteed to help you find the key information when your parent is unable to help you prepare any longer.
How do You Bring Up This Sensitive Topic?
While early planning is critical, the subjects of money and aging can be very difficult to broach with your parents. So how do you start the conversation around this sensitive subject?
There is no one answer to this question – how you raise the topic to your parents will be very personal based on how you think they will react and their individual attitudes towards their finances. Maybe you can bring up the discussion by using a friend’s situation as an example. Or mention that you recently updated your own estate plan and wondered if you can help your parents do the same. Perhaps you can approach your parents following a significant birthday or after a retirement party? Use these milestones as an opening to suggest they may need to make changes to their financial planning and they should bring you into the loop.
While your parents may be initially resistant, they might just need time to embrace the idea.
If they remain resistant, consider enlisting the help of their doctor, financial planner or accountant. Your parents may be more inclined to listen if a third party explains how important it is to discuss their finances with their children.
You may need to take more assertive steps—even going to court—if you see significant signs of decline that your parents refuse to acknowledge, such as changes in their hygiene habits, out-of-character behavior or confusion. Also, do not overlook the potential for elder financial abuse by other family members or caretakers. Common signs that your parents are being financially exploited include missing money/property, unexplained financial withdrawals or transfers, changes to a will or banking accounts, new bank accounts, or other suspicious activities.
While planning is helpful, if you do become your parents’ agent or trustee, you will have some rules to follow. After all, your parents’ assets still belong to them. As a result, you should consider what this responsibility entails, some basic guidelines include:
- Acting in their best interest
- Managing their assets properly
- Keeping their assets separate from your own
- Maintaining records documenting your actions on their behalf
You may want to seek guidance from an estate planning attorney or other professional who can help you perform your duties in a legally sufficient manner.
While you may not become your parents’ legal guardian for decades—perhaps never—everyone will feel better knowing that their financial matters are in good hands no matter what the future holds.
Disclaimer: The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Third party data is obtained from sources believed to be reliable; however, Personal Capital Corporation (“Personal Capital”) cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose.