As your parents age, they may require more assistance in different aspects of their life, including their finances. This doesn't always mean financially taking care of them (although that's also possible), but it could mean becoming responsible for managing their money.
It's more than just income and expenses
Taking over your parents' finances isn't just about managing their income and monthly expenses. That's undoubtedly an important part, but it's just one piece of the financial puzzle. First, you'll want to gather information about all their financial accounts. Accounts to look for include checking, savings, retirement, brokerage, and health savings accounts.
For each account, be sure to know the account number, how it's accessed, and check that the information on file is up to date.
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After you have that information, you can focus on the income, expenses, and assets. You'll want to know how much money is coming in, where it's coming from, which account it goes into, and how often. It could be 401(k) withdrawals, Social Security, investment income, or anything else. If it's from investments, make sure a portion doesn't need to be set aside for taxes or recurring costs (like maintenance on rental properties).
Monthly expenses are more straightforward, but the important thing is knowing the amount and time frame of debts like mortgages, car loans, credit cards, or any other financial obligations.
It's important to get all the legalities in order
To make everything easier, you'll also want to have your parents' legal documents handy and easily accessible.
Documents to look for include birth certificates, marriage certificates, death certificates, Social Security cards, insurance policies, retirement and pension documents, and any document similar to a deed or will. If your parents don't have a will, now would be a good time to discuss that as well.
Having these documents will make the inevitable legal logistics of the process a lot smoother. You can't just make changes to your parents' accounts or sensitive information because you're their child; you still need legal permission. A legal professional should be your go-to to get advice specific to your situation, but a good starting point would be looking into a power of attorney and healthcare proxy.
These documents contain sensitive information, so always take precautions when storing them. A little bit of extra effort to ensure they're secure can prevent much costlier problems down the road.
You need to know all their insurance details
Insurance is a big part of many older people's financial lives, so understanding your parents' situation is crucial. It could influence a lot of financial decisions in the future. Types of insurance you'll want to ask your parents about are health (including Medicare), disability, long-term care, life, homeowners or renters, and auto.
For any insurance they have, be sure to know who the policy is with, policy and coverage details, where your parents keep the policies, relevant costs, and how they're paid. If there's a particular type of insurance your parents don't have that you think they should, use this time to set that up.
It may not be a comfortable conversation
While the steps outlined in this article are practical, putting them in place may not be as straightforward. There's an emotional side to this conversation that shouldn't be overlooked. It's not always easy for people to relinquish control over such an essential part of their life, whether or not it's in their best interest.
Time permitting, try to have these conversations as early as possible to help warm your parents up to the idea. Maybe start by assisting them with bill paying and then gradually increase your involvement in things like filing taxes.
You want your parents to feel comfortable, but you also want to keep their best interests in mind. It may not be an easy process, but the effort should be well worth it.
