Managing someone else's finances takes a lot of hard work. If you've followed the advice in the previous parts of this series and written a report describing the current state of your parent's financial affairs, then you've already accomplished a lot. The last step is to take what you've learned and come up with an appropriate plan of action to proceed.
In coming up with an action plan, make sure you keep your priorities straight. You will find that while some tasks require immediate attention, you will be able to defer others until the more important tasks are complete. For example, if your parent is behind on many bills and has some delinquent accounts, it usually makes sense to clear those matters up before you start rebalancing the asset allocation on your parent's investment portfolio. Similarly, if health concerns are of paramount importance, look into issues such as Medicare and health-insurance eligibility, long-term-care insurance, and rules for medical assistance in the state in which your parent lives, and address those issues before moving your attention to other matters. Although several issues may become critical at the same time, by knowing what's most important to your parent, you can make sure you deal with everything in a way your parent will appreciate.
Be (somewhat) conservative about major changes
When in doubt about considering changes to the financial arrangements your parent established, err on the side of taking action that is consistent with the way your parent has acted in the past. While you might believe that your parent's financial arrangements are inefficient, unnecessarily costly, and imprudent, there are considerations beyond the purely financial that argue in favor of leaving things the way they are.
First, your fiduciary duty is to your parent, and the best expression of your parent's wishes can be seen in the way your parent handled finances in the past. Even though your duty to act in your parent's best interests may mean doing something your parent doesn't like, that doesn't mean you have to nitpick every detail. For instance, if your parent holds shares of State Street's exchange-traded SPDR Trust
Second, and more importantly, the fewer changes you make to your parent's finances, the more your parent will be able to help you on an ongoing basis, and the more comfortable your parent will feel with your management. If you immediately step in and change all of your parent's investments, your parent at best will have no idea how to assist you and at worst will start actively opposing your efforts, out of fear that you have gone out of control. It's not worth it to make small changes that will have only a minor impact on your parent's financial situation if making those changes destroys your relationship with your parent.
Finally, making changes to your parent's investments may have substantial income-tax or estate-tax consequences. A conservative approach to making changes will avoid pitfalls that could lead to losing tax benefits or increasing tax liability. Even if you are making only small changes, be sure to talk with your parent's accountant or tax preparer before going forward.
On the other hand, if leaving things as they are will cause major problems, then you should definitely make any necessary changes. How to draw the line between minor and major issues is something that depends on several factors, including your parent's net worth, the amount of anticipated income and expenses, and the level of complexity in your parent's financial plan.
Getting a second opinion
So far, this article has talked mostly about what you can do yourself. One thing you should remember, however, is that you don't have to do this alone. Most powers of attorney will give you the right to incur expenses to get help, as long as the expenses are reasonable. This means that if you want, you can hire a financial advisor to assist you, even if your parent wasn't previously using one.
Choosing someone to give you a second opinion can be a challenge in itself. If your parent has multiple advisors and you trust one of them more than you do the others, have the trusted advisor render an opinion on the others. Keep in mind that nearly any advisor in this situation has a conflict of interest, since criticizing the other advisors may lead you to move all assets to the trusted advisor, and that means more profits for him or her. Be especially wary if an advisor isn't open to your questions or tries to gloss over your concerns. Good independent financial advisors will address your concerns openly and thoroughly.
Keep your parent informed
Make sure to talk frequently with your parent throughout the process. Keep in mind that most parents in this situation are scared to death. Even faced with aging and their own mortality, they may find that giving up financial responsibility often represents the most significant permanent loss of control over their personal lives that they have ever experienced. What's more, when a child is involved, the resulting role reversal is uncomfortable -- parents don't like their children to have to take care of them.
But by keeping the lines of communication open with your parent, you give him or her the chance to provide input and guidance about what you're doing. While you may have no legal obligation to do so, talking about your actions can make the transition much easier for your parent.
The end of the beginning
If you've made it this far, congratulations! You've made a huge accomplishment in getting your parent's finances on track for the future. Pat yourself in the back, take a deep breath, and relax for a few minutes.
Then prepare yourself for the realization that you may be doing this for a long, long time. The final part of this article talks about what you should do to keep your parent's finances in good condition.
- Managing Mom's Money
- Managing Mom's Money: Part 2
- Managing Mom's Money: Part 3
- Managing Mom's Money: Part 5
Fool contributor Dan Caplinger wants to assure all of his readers that he's not a sexist, but he does like alliterative headlines. Dan is an estate-planning attorney, independent financial consultant, and licensed CFP professional. He owns none of the stocks mentioned in this series of articles. You can read more about exchange-traded funds in our ETF Center. The Fool has a disclosure policy.