The Young Adult’s Guide to Managing an Aging Parent’s Money

Money & Relationships man-discussing-finances-with-elderly-mom

When we think about those struggling with finances, retirement, and debts, we usually picture recent college graduates and young adults. Yet 60 percent of seniors are working into retirement because they can’t afford to retire. As a result, about a third of adults have given their parents over 65 money in the last year. Whether it’s to help out with expenses, educate them on how to avoid online scams, or to take the burden off an ill or aging parent, many young adults find that at some point it’s time to return the favor to the people who raised them and help out financially.

However, it’s important to understand the most effective ways to assist your parents to avoid setting back your own finances or going into debt. Use this guide to organize you and your parents’ financial journeys and get ahead of any potential issues before they arise.

Table of Contents:

Have a Conversation About Their Finances

Bringing up finances with your parents may be an uncomfortable subject — which is one reason why 73 percent of people have never done it. However, it’s important to have a conversation about where they stand. This helps you identify any underlying reasons that they may be short on bills or behind on retirement. Even if they don’t currently need help, knowing about their bills, debts, and assets will help you immensely if you ever do need to lend a hand.

Keep in mind how important the timing of the conversation is. While you and your siblings may all be conveniently together at a holiday dinner, it’s better to plan a more private gathering to ensure your parents don’t feel ambushed. Rather than bringing up the topic of money or a will to your parents, consider inviting them to have a conversation about money. This could be a text or email that lets them know you’d like to talk, while giving them the option to determine the circumstances that would make them the most comfortable.

It’s best to ask them questions directly, without beating around the bush. However, you can also approach the conversation indirectly as well. Consider broaching the subject by first asking for your own financial advice, or sharing anecdotes from others’ lives, before turning the conversation to their finances.

It’s okay if understanding your parents’ finances is an ongoing process. Remember to remain open to their needs, to ensure the conversation is productive and useful for both of you.

Here are questions to ask your loved one:

  • What does your ideal retirement look like?
  • Do you have a will or living trust and estate plan?
  • What is your plan for managing future healthcare expenses?
  • What sources of income do you rely on?
  • Where do you keep important financial documents?
  • Do you have a financial advisor or lawyer?

Identify and Discuss Common Financial Scams

Older adults and seniors are more susceptible to financial scams. The Federal Trade

Commission reports that 80 percent of telemarketing scam victims are over age 65. This is partly because scammers know older adults are more susceptible to these scams. In your conversation about finances with your parents, it’s a good idea to touch on common scams and how to recognize them:

Telemarketing Fraud: This fraud typically involves a phone call from a salesman marketing products that are fake, with the goal of getting your parents’ credit card information. There may also be calls claiming that your parent has won something and must take further steps to claim the prize. Warn your parents to be suspicious of sharing personal information with anyone over the phone.

Social Security Scam: This common scam has resulted in over 115,000 individual complaints to the FTC, and 38 million in losses in just 2019. A scammer usually calls an individual, claiming to be from the Social Security Administration (SSA). Though there are many versions, they may claim money is owed and threaten to arrest or sue until it is paid. Other tactics may instead try to confirm your parents’ Social Security number. Communicate to your parents that the SSA will never call you regarding an account, or threaten to suspend a Social Security number.

Online and Email Scams: Though there are many ways that scammers may try to use email or websites to scam your parents, it goes a long way to communicate a few clear tenets. For email phishing scams, make sure they always check the original sender, and never share personal information with a stranger or unverified website over the internet. In addition, many older adults are susceptible to donating to fake charities in the wake of natural disasters. Encourage them to search for charities by using the IRS’ charities search. Another common scam involves purchasing fake or useless programs known as scareware, designed to use their inexperience to get them to buy antivirus software they don’t need.

Look for Warning Signs You May Need to Step In

It’s possible that your parents will avoid asking for help — even if they need it. Keep an eye out for signs that it may time to step in and assist them in managing their finances. These include subtle signs of mental decline or uncharacteristic detrimental financial decisions.

Being unsure about financial details: If your parent is uncertain why a certain large purchase was made, or struggles to remember the name of an important financial account, these may be signs that you may need to help out.

Making many large, unnecessary purchases: Watch out for the accumulation of new items around your parents’ home. Though your parents may have always been spendthrifts, its key to note changes in behavior, like ordering many more things online or through shopping networks, especially if they buy the same thing multiple times.

Excessive letters and calls: It may not be easily apparent, but it’s also important to keep an eye out for bills piling up, frequent collections calls, or past-due notices. This is also to ensure that anyone asking your parents for money is not trying to scam them.

Become Their Fiduciary

Before you can play a larger role in assisting your parents with managing their money, it’s important to make sure you’re given the authority to access to their accounts and make decisions on their behalf legally by becoming a fiduciary. A fiduciary is someone trusted to act on financial matters in the best interest of another person. There are several different ways to do this:

Power of Attorney: Obtaining a power of attorney allows you to make decisions about your loved one’s assets or money should they become incapacitated. To obtain a power of attorney, you and your parent would sign a form in the presence of a notary or witness if your state law requires it. A power of attorney is different from a durable power of attorney because in some states, a power of attorney is only applicable if they are not incapacitated. A durable power of attorney remains in effect even if they become incapacitated.

It’s important to note that you cannot get a power of attorney without your parent’s consent, even if they are unable to consent.

Court-Appointed Guardian: If your parent is unable to consent to a power of attorney, you may choose to go to court to have a guardian appointed. This can be a longer process with less control for both you and your parent, so it is often wiser to establish a POA before this becomes necessary. Trustees: Your parents may also choose to transfer their assets to a trust, and appoint you or another as a trustee. This means that should they ever become unable to manage their assets, you would become responsible for making decisions about and managing the trust’s assets.

When in control of another’s finances, it’s important to understand this carries several responsibilities. The Consumer Financial Protection Bureau lists four major duties of a fiduciary:

  1. Act only in their best interest
  2. Manage their money and property carefully
  3. Keep their money and property separate from yours
  4. Keep good records

Gather Financial Documents

In order to properly manage your parent’s finances, it’s helpful to get a full picture of all their finances. Depending on your planning, it may also be helpful for you to have access to their online accounts and passwords. Acquiring these documents now will ensure you have access to the accounts and records should you ever need them:

Paper Documents:

  • Bank account and credit card statements
  • Monthly bills
  • Records of debts
  • Tax returns
  • Recurring membership payments
  • Social Security statements
  • Retirement accounts (IRA, 401(k), etc.)
  • Insurance policies
  • Investments (Stocks, certificates, bonds, etc.)
  • Medical records
  • Titles and deeds to assets

Important passwords:

  • Home computer
  • Online banking passwords
  • Investment accounts and funds

Once you’ve gathered, or know the location of each of these documents, it’s a good idea to organize everything by type and date.

Plan for the Future

In your discussion about their finances, it’s helpful to figure out how they see their future, and what plans they have for managing everything as they age. If they aren’t sure, it’s always better to encourage that planning sooner rather than later.

Talk to your parents about their ideal living situation going forward, should their current home become less ideal for their needs. There are many types of assisted living facilities and caregiving options, with different perks and drawbacks, as well as costs. Discuss which would be preferable to your parents, and help them make a plan for affording it. Changes to their current living may simply involve making stairs more accessible or moving to a location better for their mobility

Now may be a good time to discuss the option of long-term care insurance. Different than health or life insurance, long-term care insurance can help pay for things like nursing or assisted-living should it become necessary later in life. Some experts recommend that between the ages of 50 and 60 is the best time to consider getting long-term care insurance.

It is also critical to discuss estate planning with your parents. When it comes time to assess their assets and money, the last thing you want is an extensive probate process. Knowing their wishes beforehand will help mitigate stress when it comes time to enact their will.

Protect Your Finances

Throughout changes in you and your parents’ lives, it may be tempting to offer your money or savings in order to bridge any financial gaps that come up. However, it’s important for both you and your parents to keep your finances as separate as possible. Not only will your parents likely prefer to know that you will have money to provide for your future, but it will help keep you on track for critical retirement payments that are best made early on in life.

Only three in 10 young adults under 35 are currently saving for retirement, which could end up costing them hundreds of thousands of dollars in lost interest and contributions. Though it may seem far off, planning for your own retirement starts in your 20s.

To help protect your finances while managing more than usual, make as many payments automatic as possible, including bills and savings contributions. Make an effort not to use your credit card for anything you can’t pay off at the end of the month, and take stock of your budget and spending alongside your parent’s to catch any major spending issues.

Additional Resources 

Power of Attorney Forms

More Information on Power of Attorney

CFPB Guide for Agents Under a Power of Attorney 

AARP Guide to Organizing Loved One’s Documents

Financial Scams Targeting Seniors

Universal Design for Aging in Place

BBB Wise Giving Alliance

 

Sources: Whereyoulivematters | Forbes | Kiplinger | AgingCare | MCampbellCPA | Consumer Financial Protection Bureau | Investopedia | AARP | FTC | HSR

Tags:

Leave a Reply

Your email address will not be published. Required fields are marked *