Managing Your Parents’ Finances: How to Cover the Bases

At this time of year, many folks have either met with their financial consultant or tax expert for their income tax filing or are at least in the process of gathering the necessary documents for that process. Household finances and budgets can tend to be at “top of mind” during the next several weeks up until the April tax filing deadline. If you are in a situation this year where you not only have to be concerned with your own household finances but now suddenly find yourself responsible for your parents’ finances as well, it may seem a bit daunting.

Managing your own money isn’t easy under the best circumstances, so it’s not surprising that most people feel overwhelmed when it’s time to step in and take over the management of their parents’ finances. But as is the case with any large project, what feels impossibly complex taken as a whole, becomes much more doable when separated into manageable segments. By separating the process of managing your parents’ finances into sequential steps, you’ll find yourself far less stressed. Listed below are eight steps that can help you move forward.

• Locate all accounts and documents

Your first responsibility as your parents’ financial manager is to do some investigating. If your parents are competent to discuss their finances, get a head start by asking them Five Basic Questions about their finances.
Once you’ve determined appropriate answers to your inquiries, start going through files as you’ll want a clear picture of every asset they have. Start with savings and checking accounts, retirement accounts, investment accounts, and pensions. But that’s just the beginning. You’ll also want to locate the paperwork for your parents’ mortgage (if applicable) and any other real estate holdings as well as the account statements for their credit cards. You should also find out about every insurance policy your parents have in place, including life insurance, annuities, and long-term care insurance. Discuss where they store valuables, and whether they have one or more safety deposit boxes. And…don’t forget to ask your parents if they’ve ever purchased or inherited any individual company stocks. (It’s often surprising how many seniors have original stock certificates squirreled away.

• Establish Power of Attorney

If you’ve been designated to help your parents with their money and assets, you may already have power of attorney (POA) for finances. If not, you’ll want to get this taken care of. Having Power of Attorney allows you to access your parents’ financial records so you can act on their behalf. You’ll need this designation to research account balances, transfer funds, pay bills, write checks, make deposits and withdrawals, and open safe deposit boxes. In other words, with a financial POA designation, you can take care of your new responsibilities without having your hands tied.

• Gain access to all accounts

In addition to Power of Attorney, or sometimes in place of this designation, banks and other financial institutions often have their own forms that establish access to your parents’ accounts. Once your parent signs these forms, (he/she may or may not need to be present, depending on the institution’s rules), you can write checks, make payments and withdrawals, check on account balances, and do all the other things an account holder does.

• Compile a list of debts

The first and most important of these would be the mortgage on their home. Even if it’s determined that it’s already paid off, you should if at all possible see if there is documentation that you can have in hand that 100% verifies nothing further is owed. If there is still an outstanding balance, it behooves you to find out the amount. Down the line, it may become important to understand how much equity your parents have in their home, in which case you’ll want to have the home appraised so you can compare the appraisal to the amount still due on the mortgage. Next, check if there is an equity line of credit on the house, or any other debt/lien attached to the house. If your parents have taken out a reverse mortgage, it’s especially important to understand the associated terms.

You’ll also want to make sure you have all the information you need about your parents’ credit cards and any other outstanding debts. Follow up thoroughly on any creditors’ notices you find in the mail, such as bills that have gone to a collection agency. Because it may be hard for your parents to talk about credit card debt and other debts, it may be best to contact the companies directly to find out what is owed.

• Explore Social Security benefits

It’s likely that Social Security payments make up a significant portion of your parents income, so it’s important to understand how much that benefit is. You also may find it’s worthwhile to explore, or at least ask, whether your loved one(s) is getting the maximum benefit they are entitled to. The rules surrounding Social Security are complex, particular those governing widowhood and divorce and…there are cases in which someone qualifies for more than they are receiving. An eldercare attorney or financial planner can help you with these issues.

• Make sure documents are up to date

Life is long, things change, and older adults are forgetful. Combine these three factors and the chances are high that some of your parents’ documents and policies are no longer current. Review your parents’ wills and trusts…is everything up to date? Take the time to go over the list of assets included in the trust. Is everything there that should be? All too often, people have moved money and opened new accounts, then forgot to amend the trust to include them. Check designated beneficiaries on all accounts. Is the right person (or persons) listed?

While it’s not a financial document, take this opportunity to review your parent’s Advance Health Care Directive as well, since it’s very important to make sure it still reflects your parent’s current wishes, including the right person as health care agent. If you discover that your parents do not have an Advance Health Care Directive, you are strongly urged to have those documents put in place. An Advance Health Care Directive helps loved ones, and medical personnel make important decisions during a crisis. Having an advance directive in place ensures that your parents’ wishes regarding their health care are carried out, even when they are unable or incapable of making their wishes known.

Next, you’ll want to perform more in-depth research into the terms of insurance policies, loans, and other financial vehicles such as annuities. Do the terms of insurance policies make sense for your loved one’s current situation? It’s not unusual to discover that the terms and costs of life insurance policies no longer make sense for this phase of your parent’s life. If so, your parent may be paying too much for benefits they no longer need.

• Check on taxes

You might be surprised at the number of older adults who one day no longer remember to pay their income or property taxes. And those mistakes can cost you dearly in penalties. In fact, too many years of unpaid property taxes can result in a house ending up on the auction block. Look for tax returns from the last few years and if you don’t find them, call the IRS. Your local assessor’s office should have your parent’s property taxes on file.

• Review investment strategies

If your parents have money invested in mutual funds, stocks, or other investment vehicles, now is the time to take a look at the investment strategy being employed and make sure it best suits their needs at this time of life. Since your parent is no longer saving for the distant future and may need that money soon, this typically means money should be moved away from riskier investments with a longer return, e.g. from stocks into more conservative investments such as bonds. Ultimately, your investment goal is to make sure the money is there when they need it.