This is a guest post by Cameron Huddleston, author of Mom and Dad, We Need to Talk. She writes about how to help aging parents with their finances on the Carefull blog.
There might come a time when the roles are reversed and you will have to help care for your parents. It could mean financial support if they didn’t save enough for retirement. Or caregiving if a health issue leaves them unable to care for themselves. They might even become victims of fraud as they age and become more vulnerable.
Regardless of the reason, you need to be prepared. You’ll want to make sure that all the proper legal documents are in place. This will allow you to make financial and health care decisions and deal with emergencies if they arise.
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Why You Need to Talk to Parents about Their Finances
According to a survey by GOBankingRates, 73% of adult children haven’t had detailed conversations with their parents about their parents’ finances. But being able to help your parents start with these conversations.
More than half said they don’t think these conversations need to happen until their parents retire, start to have health issues, show signs they need help, or actually ask for help. And 22% said they don’t think they should ever discuss their parents’ finances because it’s none of their business.
It’s understandable why adult children are reluctant to talk to their parents about their parents’ finances. After all, money can be a taboo topic. But older adults are facing a host of issues that could force their children to become actively involved in their financial lives.
For example, almost half of adults ages 56 to 72 haven’t saved anything for retirement, according to an Insured Retirement Institute study. Although most parents don’t want to be a burden on their kids, they might have no choice but to ask for some financial support from their children.
Also, the risk of developing chronic health conditions increases as people age – which could lead to increased medical costs and a need for support from family members.
As people age, they’re more likely to need long-term care. In fact, most Americans turning 65 will need long-term care at some point, according to the Department of Health and Human Services.
All of this means that a growing number of children might have to help provide support for their parents but might not be prepared to do so if they haven’t had essential financial conversations.
Waiting to talk to your parents until they’re having problems can leave you with fewer options to help them. Conversations will be more emotionally charged. And it might be impossible to gain access to parents’ accounts or make health care decisions for them without lengthy, expensive court proceedings.
How to Start the Conversation
You may be feeling like your parents will think you’re being nosy or greedy. Or you might be worried that they’ll get mad and your relationship will be damaged.
Most likely, your parents won’t think any of those things. Let them know you want to talk to them because you’re looking out for their best interests. If you approach the conversation out of love and respect and use one of these strategies, they may start talking.
Ask for advice: If you’re young and just starting out, a natural way to get a conversation started with your parents is to ask for advice about your financial situation. The goal is to get your parents to open up about the financial and estate planning they have done.
Ask about ‘what if’ scenarios: A key reason to talk to your parents about their finances is to be prepared for emergencies. You could ask how their bills would be paid if, say, they were in the hospital for awhile. This could lead to a conversation about making sure there’s a system in place to handle emergency situations.
Use a story: Tell your parents about someone you know who has had to get involved with their parents’ financial lives.
For example, maybe you have a friend whose parent died without a will. This could lead to discussions about the importance of having a will and other legal documents such as power of attorney.
Don’t make the conversation about money: If money is a taboo topic in your family, don’t start the conversation by asking about details of their finances. Instead, try to get your parents talking about big-picture topics, such as what they hope their retirement will be like.
Take a direct approach: No need to beat around the bush if you have a good relationship with your parents and money isn’t a taboo topic.
You could simply say, “Mom and Dad, you took good care of me while I was growing up. I want to be able to do the same if you ever need help from me. Yes, I understand that your finances might not be any of my business right now. But if something were to happen to you, it might become my business. That’s why I’d like to get some information from you.”
Make Siblings Part of the Conversation
Before you start talking to your parents, you should talk to your siblings. Why? You don’t want your siblings to resent you or think you have ulterior motives.
Call a family meeting to let your siblings know that you think it’s important to have a conversation with your parents about their finances. You can discuss whether one or all of you will be part of the conversation. You also should decide how to start the conversation and when to do it.
A word of caution: A holiday meal is not the right time to start talking to parents about their finances.
There could be people there who don’t need to be a part of the conversation. If someone has had too much wine, the conversation could go downhill real fast. And some family gatherings are tense already. So the last thing you want to do is start talking about money to turn up the tension.
Instead, try to find a neutral time where tensions won’t be as high.
What to Know About Your Parents’ Finances
The more details you can gather about your finances, the better. If they’re reluctant to talk, at least try to get a sense of where they stand financially. This will help give you an idea of whether you can expect them to ask you for support as they age.
If they’re willing to share information, start by finding out how they pay their bills. Are they using automatic bill pay or writing checks each month? If it’s the latter, encourage them to set up automatic payments. This way their bills will continue to be paid, even if something were to happen to them.
Then dig a little deeper. If possible get the following information:
- Sources of income
- Where your parents bank and the types of accounts they have
- What types of debt they have
- Type of insurance policies they have and where the policies are stored
- Types of investment accounts they have
- Real estate they own
- Monthly bills that must be paid
- Names and contact information for financial professionals they work with
Other useful information would be:
- Social Security numbers
- usernames and passwords
- medical conditions and history
This will all be necessary if you become a caregiver for a parent.
Even if your parents aren’t ready to talk just yet, at least ask them to make a list of the accounts, insurance policies, and legal documents they have. Ask them to tell you where you could find that list in case of an emergency.
If they are open to this, consider something like the ICE Binder from Smart Money Mamas. (or you can make an In-Case-Of Emergency binder yourself) It’s a workbook that walks you through everything you’ll need your loved ones to know after you pass. Your parents need one… and you do too.
Make Sure They Have Essential Legal Documents
Even if your parents are reluctant to talk about their finances, at least try to find out whether they have estate planning documents such as:
- a will
- power of attorney
- advance directive
A will spells out who gets what when they die. If they die without one, state law will determine how their assets are distributed.
Even more important than a will, though, are the power of attorney and advance directive documents.
A power of attorney document allows your parents to name someone (or more than one person) to make financial decisions for them if they can’t. Power of attorney is perhaps the most critical document to get right. Unfortunately, it can be confusing because there are a handful of different types and each state has slightly different laws.
You can read more about power of attorney here.
An advance directive – also called a living will – spells out what sort of end-of-life medical support they would or would not want. It also allows them to name a health care proxy to make medical decisions for them if they can’t.
They must be competent to sign these documents. If something were to happen to your parents before they can sign, you would have to go through the courts and be appointed by a judge to make these decisions for them.
If your parents may be reluctant to hand over these powers to you right now. If that’s the case, let them know that you don’t have any power unless you have the actual documents in hand. They can keep the documents with them, just be sure you know how to find them in an emergency.
Discuss Long-Term Care
As you gather details from your parents about their finances, find out whether they have a plan to pay for long-term care.
More than half of adults turning age 65 today will develop a disability that requires them to get long-term care, according to the U.S. Department of Health and Human Services.
The cost currently ranges from about $4,000 a month for care from a home health aid or in an assisted living facility to more than $8,000 a month for care in a skilled nursing facility, according to the Genworth Cost of Care Survey.
They can find a long-term care insurance broker through the American Association for Long-Term Care website. Or they can find a financial planner through the Financial Planning Association’s member directory at PlannerSearch.org to create a plan for paying for care.
Here’s what you need to know about buying long term care insurance.
Protect Parents from Scams
Even if your parents don’t need financial or caregiving support, you still might have to get involved with their finances as they age.
To help protect them, you can take the following steps:
Alert them to scam red flags. Tell them to never wire money or provide their personal information to unsolicited callers. Remind them if it’s too good to be true it is. Such as limited-time offers to get in on money-making opportunities and offers of high-return investments with no risk.
Also, make sure they understand that government agencies such as the IRS, Medicare, or Social Security Administration don’t make phone calls. Government agencies communicate by mail, not phone calls or email. If they get a call from the government suggest that they call you before handing over any money.
Give them a script they can use to hang up on unwanted calls so they don’t feel like they’re being impolite. For example, “I’m sorry. I have a visitor right now.”
Help them avoid telemarketing calls by registering their home and mobile numbers for free with the National Do Not Call Registry at donotcall.gov.
Help them monitor their financial accounts by encouraging them to set up online access so they can check accounts regularly rather than waiting to get a statement once a month.
Also, encourage them to set up alerts on their bank accounts. This can help them spot fraudulent charges quickly.
Help them check their credit reports for lines of credit they didn’t open. This could be a sign that they’re victims of identity theft. They can get free copies of their credit reports at AnnualCreditReport.com.
Point them to resources, such as the AARP Fraud Watch Network, the Federal Trade Commission’s scam alerts, and the Security and Exchange Commission’s “A Guide for Seniors.”
Remember, the goal is to look out for your parents’ best interests.
It might take time before they feel comfortable sharing information with you. Don’t get frustrated. Be patient and keep trying different approaches until you find the one that works.
This guide was created in partnership with Carefull, a new company building digital services for financial caregivers- those responsible for the day-to-day financial well-being of a loved one.