When you were little, they bandaged your skinned knees and tucked you in at night. Now they need your extra love and care.
If you’re one of the 40 million people in the United States who is caring for an aging parent, you’re not alone.1 Caring for a parent is one of the most loving things you can do. Along the way, maybe you’ve found a few late bills, or you’ve seen their cognitive decline, and you’re wondering how you can help with their finances.
Fortunately, helping aging parents be financially prepared can be fairly simple. Here are a few tips.
1. Be gentle when starting the conversation about taking over aging parents’ finances.
Whenever possible, we recommend having an honest and open conversation with your aging parent(s). Choose the right time and place where you can have a relaxed conversation and express your concern. As you talk, remember to be empathetic and respectful. Taking over aging parents’ finances can be emotionally difficult for them. After all, it can be hard to relinquish control, and they may still want to take care of you. As a rule of thumb, treat your parent as you would like to be treated by your own children one day.
In some situations, an aging parent prefers professional help. Perhaps their financial situation is more complex, or they feel more comfortable bringing in outside help. If this is the case, respect their wishes and reassure them that you just want to make their lives easier and more manageable. Modern Woodmen financial representatives are experienced in supporting families. Our team can help you work together and map out the best path for the years ahead.
Warning signs to look for when deciding to take over your parents’ finances
Wondering what to look for? Trust your gut. If something feels off, you’re probably right. For example, your mom or dad might be having trouble managing their money if you see:
- Piles of unopened mail at their house.
- Calls from creditors.
- Unusual and frequent trips to the bank.
- Losing checks or cash.
If your aging parent is entering multiple contests and sweepstakes, or if they complain about not having enough money, it’s also time to ask questions. Keep your eyes open and don’t brush off strange behavior.
2. Prioritize looking at their current finances.
If your parent gives you the green light to help, the first step is to assess their current finances. This can help you understand where they need assistance and if they’re behind on bills or paying debt. Aging parents often are targets of financial scams and abuse. When you look at their current finances, it can help you protect them and prevent financial mismanagement.
As you begin to manage finances for aging parents, you’ll want to evaluate:
- Sources of income – Take a look at their Social Security statements, pensions, retirement savings accounts, and other sources of income. It’s also helpful to keep records of these accounts and organize them.
- Bills and expenses – See if you can find records of mortgage (or rent) payments, utility bills, medical bills, insurance premiums and credit card statements. Not only can you make sure your parent is paying their bills on time, but understanding their expenses can also help you create a reasonable budget.
- Other financial assets – Review records of all their financial assets, including investment portfolios, personal property and bank accounts. It’s important to understand how much your aging parent owns in order to see the full picture.
- Insurance policies – It’s also ideal if your parent has secured life and long-term care insurance , especially if they need more hands-on medical support than you can provide. Take a close look at these policies and make sure you understand how they work.
- Official legal documents – Your parent should establish a living will or trust, health-care proxy, and power of attorney. These documents can help you follow through with their wishes if they are unable to make medical or legal decisions on their own.
There’s a lot more to cover here, but we’ll break it down in the next section.
3. Review all important legal documents.
If your mom and dad haven’t yet created an estate plan, now’s the time. Here are a few reasons estate plans are so essential.
- They make financial plans crystal clear. Ideally, estate plans eliminate confusion over how a person’s assets are managed and distributed after death. It helps ensure their final wishes are carried out and prevents disputes among family members.
- They ensure a person’s health-care wishes are honored. If your parent is no longer able to make medical decisions on their own, a health-care proxy puts protection in place, ensuring a trusted person makes decisions on their behalf.
- They can lower taxes and protect wealth. A financial representative can help set up an estate plan so that it minimizes taxable income and assets. This can be done by setting up trusts, gifting money to loved ones, and other strategies like buying life insurance.
- They offer peace of mind. Most of all, a proper estate plan helps avoid disputes in court and maps out a clear plan for managing an aging parent’s finances.
Documents included in an estate plan
An estate plan should include a living will or trust, power of attorney, and health-care proxy. If these documents haven’t been created, it’s critical to work with a legal professional as soon as possible to ensure your parents’ wishes are respected.
Keep in mind, these documents can only be created if a parent is still cognitively able to understand and sign off on them. If your parent has dementia and does not have the legal capacity to participate in the creation of these documents, you’ll need to obtain help from local courts.
Here's a quick overview of each of these documents -- and why they’re so important
- Last will and testament - This legal document outlines how a person wants their financial assets to be handled after passing away. A will always includes the appointment of an executor. This person is responsible for ensuring the will’s instructions are carried out. Usually this involves distributing assets and paying off debts.
- Trust - This is another type of legal agreement that’s designed to help manage a person’s assets. In this case, an appointed trustee manages financial assets for another person. Often people create a trust to protect their assets, lower estate taxes, or to protect children and family members with special needs.
- Health-care proxy - If your parent is unable to make medical decisions on their own, it’s critical that a health-care proxy is already in place. This document allows you or someone else to make health-care decisions, like accepting or refusing treatments, choosing providers and more. For example, a health-care proxy might be used if a parent has severe Alzheimer’s disease or has experienced a stroke and is unable to respond with understanding.
- Power of attorney -
A power of attorney is one of the most important financial documents you’ll need to locate or help your parent create. Taking over an aging parent’s finances cannot be done without a power of attorney in place.
There are a few different types of power of attorney documents, but they all allow a designated person (the agent or attorney-in-fact) to make financial decisions on behalf of your parent. At Modern Woodmen, we can help answer basic questions about these documents, but it’s always best to talk to a legal professional to create a power of attorney and understand the specifics of how they work.
At a high level, you can expect a power of attorney to give another person (the agent) the freedom to pay bills, access bank accounts and sell property. Remember, it’s absolutely essential that a trustworthy person is designated as the agent.
4. Don’t forget the importance of planning for health-care costs.
Once your parent has an estate plan, you may think your job is done, but it’s not. If you haven’t discussed health-care costs yet, now’s the time. According to the Centers for Medicare & Medicaid Services (CMS), the average person age 65 and older spent $22,356 on health care in 2020. This is five times higher than the average spending per child and two and a half times higher than the average working-age adult.2
5. Maintain open communication with other family members.
For most of your life, your parent(s) cared for you. Now it’s the other way around – they need you. Fortunately, if you approach the topic gently, they’ll realize how helpful you can be, whether it’s mailing bills, talking to a financial representative, or buying insurance on their behalf.
If you have siblings, involve them too. Ask their opinions and take their thoughts into careful consideration. Ask them what, if any, roles they’d like to take. If your mom and/or dad have already designated your brother or sister as an agent for a power of attorney or health-care proxy, respect their decision and give them the freedom to do their job well.
Above all, try to avoid conflict with other loved ones. When you communicate well as a family, the healthier you – and your parent(s) – will be.
This material is for your information only and is not a recommendation or offer to sell any product. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Modern Woodmen of America does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
1https://www.pewresearch.org/short-reads/2015/11/18/5-facts-about-family-caregivers/