What would happen if you were forced to take over management of your parents’ finances on an emergency basis? If your mother or father were to become ill or disabled, someone would have to continue paying their bills and managing their money. This circumstance occurs in a large number of families. Are you adequately prepared?
In an ideal world, an adult kid would have all the information necessary to accomplish this responsibility before Mom or Dad becomes incapable of handling their finances. Ascertain that you are prepared for this duty by having an open discussion with your parent(s) about their legal and financial preparations.
1. Start the conversation early
It may be some time before your parents require your assistance, so begin communicating today. Consider speaking with your parents about who will manage their affairs in the event of a crisis. The National Institute on Aging recommends that parents provide written agreement to a selected family member to discuss their personal matters with relevant experts such as doctors, financial representatives, and Medicare authorities. Without this type of forethought, privacy laws may preclude critical conversations.
Establishing ongoing communication now will assist you in comprehending their financial landscape and in determining your level of involvement over time.
2. Make gradual changes if possible
Rather than storming in and seizing control of your parents’ finances, gradually increase your support as needed. For instance, if you’ve been assigned the job of writing checks, begin by doing so together. This patient, compassionate approach allows kids (and you) to adjust to the new arrangements.
3. Take inventory of financial and legal documents
Make a list of your parents’ contact information, bank account numbers, and locations where they keep legal documents such as birth certificates, insurance policies, deeds, and wills. Verify that all information is still valid and current, and that all accounts are in good standing. Whether you’re assembling this information or noting where your parents have saved it, ensure that any sensitive data is stored securely.
4. Find all of your parents’ financial accounts and documents.
Whether you like it or not, you now need to become a financial detective, says Michael Haubrich, a Racine, Wisconsin-based Certified Financial Planner. Consider yourself fortunate if your parents maintain their bank and financial files in an easily accessible location. Otherwise, the best thing to do is to find your parents’ most recent tax return.
“The majority of your hints will be on Schedule B, which contains information on dividends and interest income, as well as the names of financial institutions,” Haubrich explains. If you think your parent used an accountant, lawyer, or financial adviser, call that person right away. He or she can often help you get important financial information.
5. Begin collecting and paying bills.
If you’re concerned that Mom and Dad will be unable to pay their bills and medical expenses, take a deep breath first. Before you begin making normal payments, make a list of all your assets and expenses. You might want to talk to an elder law lawyer or a financial planner about which bills you should pay right away and which can wait.
If your parents are financially secure, pay all their expenses on time. Be prepared if any of them are late: Mom may have been ill prior to her stroke and may have neglected to pay some of them. “Make an attempt to stay current on all bills, from utilities to groceries,” advises Martin Shenkman, an elder law attorney in Teaneck, New Jersey. “It will make life much easier if you require assistance from these individuals after Mom returns home.” Additionally, it assists you in avoiding excessive late fees. “
If you do not have access to your parents’ checking account, consider paying their bills and then being reimbursed. However, only do this if you are certain your parents will be able to reimburse you, Haubrich advises.
6. Locate any paperwork pertaining to a durable power of attorney or a living trust.
Because of this, every financial institution with which you conduct business will require you to produce your parents’ power of attorney or revocable living trust, or, if the estate is substantial enough, their successor trustee designation, as proof of your parent’s authority.
Shenkman believes this document is required before a bank will even tell you the balance of your father’s checking account. Shenkman explains that “you can still pay your parents’ bills if your name is not already on their bank account but you are listed on their power of attorney.” “Simply sign the cheques as Jane Smith (your mother’s name) by John Smith (your name) as POA.”
The bill-paying account of your mother or father should be renamed to include your name if it’s going to be your responsibility for a long time. Your bank branch manager can make this happen after examining the power of attorney paperwork.
As Shenkman points out, “be very wary about handing over or mailing power of attorney or trust paperwork.” to anyone. A “certified true original,” which is a copy created by your financial advisor, will usually be enough when banks and brokers insist on seeing the originals, according to this expert.
The original documents should be sent by overnight mail, and Haubrich recommends that you demand that the financial institution return them to you overnight. Another option is to get the documents authenticated by a bank officer in your hometown.
Most important documents:
- You can take control of their finances by filling out a power of attorney form.
- Allows you to make life or death medical decisions through a health care proxy.
- When a person dies, they leave behind a will that specifies how their assets will be distributed.
7. Open their safe-deposit boxes — in the presence of an observer.
Your parents should not retain the originals of their power of attorney or living trust in their safe-deposit box. They’re safer at home in a fireproof container. Why? If you do not have these vital documents in hand and are not named on your parents’ safe-deposit box account, you will face serious consequences. You will require those forms in order to have access to their box.
If this occurs, the simplest course of action may be to obtain a new power of attorney. This is permissible as long as your parent retains the capacity to allow it. Otherwise, you will require a court order to unlock the safe-deposit box—a significant inconvenience.
“When you first open your parent’s safe-deposit box, bring a witness, open it with a video camera rolling, and immediately record an inventory of everything inside — on paper and on videotape,” Shenkman advises.
This may seem excessive, but Shenkman notes that siblings frequently accuse one another of stealing important goods from their ailing parents’ home or safe-deposit box. Occasionally, the objects were never present in the first place.
8. A POA or living trust? Be the guardian for your sick parent.
If your father gets dementia or becomes incapacitated and is unable to manage his finances—and he has not signed a power of attorney or established a living trust—you will need to go to court to assist him.
Shenkman notes that proving your parent’s mental and/or physical incompetence is a difficult procedure. You can navigate the process with the assistance of an elder law attorney. In most circumstances, two or more physicians will need to certify in writing that Dad or Mom can no longer manage their lives on their own. In addition, you’ll have to go to court, where a judge will decide if you can handle your parents’ business.
“The judge may even appoint a ‘guardian ad litem’ with whom you will have to strive to establish that you are not abusing your parents,” Shenkman explains. “Guardianship introduces a layer of complication that you really don’t want until you’re forced to.”
9. Keep track of everything you do on behalf of your parents.
If you are responsible for paying Mom’s bills, retain duplicates of each check you make — either as checkbook duplicates or as check images that accompany statements. Additionally, keep bank statements. Keep precise receipts if you pay for anything with Mom’s cash. If you meet with a financial planner or attorney, take detailed notes on their recommendations. These types of data can demonstrate to siblings that you are carefully managing your parents’ affairs.
10 .Consider hiring a financial planning team.
If your parent develops dementia or may require long-term care, Haubrich recommends enlisting as much outside assistance as possible. Financial advisors, tax professionals, and attorneys can all assist you in avoiding common (and frequently costly) financial errors. Additionally, they can assist you in determining the best way to budget your parents’ money or whether your ailing parent’s money would outlast her. This will show your siblings that you are not trying to solve your parents’ money problems on your own.
11. Consider reinvesting in your parents’ retirement accounts.
Your father may have an additional 15 years with Alzheimer’s disease. His financial intentions are likely to alter within that time period. A knowledgeable financial advisor can assist you in determining whether your father’s certificates of deposit are too conservative or if he has an excessive amount of money in equities.
Even if you are somewhat adept at managing money, avoid speculating on what to do with your parents’ investments, Haubrich advises. “Other estate beneficiaries may subsequently second-guess your selections, which you do not desire.”
According to Haubrich, if your parents have a sizable fortune, a financial consultant will examine the parents’ and ultimate beneficiaries’ combined interests. If your parent has sufficient funds to support his or her care for years to come, the planner may propose longer-term investments that benefit the children or grandchildren. These solutions are best explored with the assistance of a specialist.
How did you get into investing
As a general rule, you should strive to save between 10% and 15% of your annual salary for retirement. Your employer match counts against this objective, but you can build your way up to it over time with a 401(k) or similar investment. Mutual funds are a good way to invest in stocks, but only a small portion of your long-term portfolio should be based on these instruments at the start of an investor’s career. A robo-advisor is an investment management company that uses computer algorithms to build and manage your portfolio. Robo-advisors are inexpensive and have little or no minimums, so they’re great for short-term savings. Read More >>
Bottom Line:
In an ideal world, an adult kid would have all the information necessary to manage their parents’ finances. Have an open discussion with your parent(s) about their legal and financial preparations. Find all of your parents’ financial accounts and documents; ensure that sensitive data is stored securely.
If your parents are financially secure, pay all their expenses on time. Mom may have been ill prior to her stroke and may have neglected to pay some of them. “Make an attempt to stay current on all bills, from utilities to groceries,” says Martin Shenkman. The bill-paying account of your mother or father should be renamed to include your name if it’s going to be your responsibility for a long time. You can take control of their finances by filling out a power of attorney form. Open their safe-deposit boxes — in the presence of an observer. If your father gets dementia or becomes incapacitated, you will need to go to court to assist him. You can navigate the process with the assistance of an elder law attorney.
Keeping track of everything you do on behalf of your parents can show that you are carefully managing their affairs. Consider hiring a financial planner if your parent has dementia or may require long-term care. Consider reinvesting in your parents’ retirement accounts.
If your parents have a sizable fortune, a financial consultant may examine the parents’ and ultimate beneficiaries’ combined interests. These solutions are best explored with the assistance of a specialist.
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