Life is a cycle that comes full circle in many ways. Your parents spend years caring for you financially, and then a time might come when it's your turn to do the same. That doesn't have to mean spending your money to take care of them, either. Sometimes, it involves taking over their finances, because they're no longer in the best position to do so.
If you find yourself in a situation where you believe it's best to take over your aging parents' finances, here are some steps that could simplify the process.
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Ease into the discussions
If you're fortunate enough to have time until you need to take over your parents' finances, it's beneficial to begin the conversation now. Questions regarding who will be responsible for their well-being could begin to warm your parents up to the idea of eventually relinquishing control of their finances.
Regardless of their reaction to the idea, it's better to have those conversations earlier than later. Not only to warm them up to the idea but also because understanding someone's entire financial situation isn't as simple as looking at their income and bills. Insurance, retirement accounts, investments, assets, and wills can complicate the process.
Here are four steps to guide you.
1. Gather financial accounts and legal documents
First, you want to gather all your parents' financial accounts and relevant legal documents (if your parents are anything like mine, this is much easier said than done). Here are some accounts you want to look for:
- Checking
- Savings
- Retirement: 401(k), IRAs
- Brokerage account
- Health savings accounts
You'll want to know the account numbers, how they're accessed, and ensure that they're up to date and in good standing. Along with a list of financial accounts, you'll want to gather your parents' legal documents, including, but not limited to:
- Birth certificates
- Marriage certificate
- Social Security cards
- Retirement and pension documents
- Insurance policies
- Deeds (like property) and wills
Remember to practice caution and store this information in a secure location. The last thing you want is this info getting into the wrong hands, potentially creating a worse problem.
2. List out assets, income sources, and expenses
A comprehensive list of your parents' assets, income sources, and expenses can help you further understand their financial situation. More than just knowing how much is coming in, you'll want to find out where it's coming from, which account it goes to, how often it comes in, and if it's a contract or subscription that must eventually be renewed.
If the income comes from an investment source, like a rental property, ensure it doesn't have "duties" attached to it. For example, a certain portion of rental income might need to be put aside to cover routine maintenance or property taxes. Income like dividends could also generate a tax bill.
Regarding expenses, outside of monthly obligations like utilities, find out the time frame on debts. It could be short-term debt, like credit cards, or long-term debt, like a mortgage.
3. Know the details about their insurance
Understanding your parents' insurance coverage is one of the more important things you can do. Types of insurance you'll want to know about are:
- Health (including Medicare)
- Life
- Disability
- Long-term care
- Homeowners or renters
- Auto
You should know which companies the policies are with, where the policies are kept, coverage details, costs, and how they're paid for. If your parents don't have a type of insurance you believe they should, consider the options for acquiring it.
4. Get the legal parts in order
Once your parents have opened up to your taking over their finances, it's time to get the legalities in place. Having legal permission to access accounts and documents, and make decisions on your parents' behalf is extremely important.
You should consult a legal professional for a comprehensive list relevant to your situation, but here's a good starting point:
- Power of attorney: This document grants you the authority to act on your parents' behalf, including managing their finances.
- Healthcare proxy: Similar to a power of attorney but specifically for medical decisions.
- Wills and trusts: These outline how your parents want their assets distributed. If a will or trust already exists, ensure they still reflect your parents' current wishes.
- Living will: This document includes medical treatments your parents would and would not want to be used and preferences for other medical decisions like pain management and organ donation.
Embrace any discomfort
Taking over your parents' finances -- or coming to terms with the fact that it's in their best interest to do so -- likely won't be easy for anyone involved, logistically and emotionally. You want to be as understanding and sympathetic to your parents' desires as possible, easing them into it while ensuring they're in good hands.
Everybody's situation is unique. Don't shy away from seeking professional advice to make the process as easy as possible for everyone involved.
