Someday — maybe even today — your parents might need help managing their finances. You might have to step in temporarily if an injury, stroke or other medical emergency leaves them hospitalized for weeks and unable to handle day-to-day money matters. Or you might have to take over entirely if Alzheimer’s or another disease robs them of their ability to make financial decisions.
I started helping my mother with some money tasks when she was diagnosed with Alzheimer’s more than seven years ago. I now handle all aspects of her finances. She never asked me to assist her. I stepped in because I saw she was having trouble. I didn’t want her to forget to pay bills. I also worried she would make poor financial choices or, even worse, be taken advantage of by scam artists.
Some parents will turn to their adult children for help, but others are reluctant to ask for assistance with money matters, say financial planners and elder law experts. “If you have someone who needs assistance because they have Alzheimer’s, they might never agree that they need help,” said Catherine Anne Seal, president-elect of the National Academy of Elder Law Attorneys. “It’s an awkward situation.”
However, taking the right steps before your parents actually need support and knowing what to do once you have to handle their finances can make the transition less awkward. The following 10 tips can help.
1. Start by Communicating
Ideally, you should have a conversation with your parents about their finances when they’re in good health and emotions are in check, said Greg Merlino, a certified financial planner and president of Ameriway Financial Services. “It’s important to set aside some time to become aware of their situation so, if something happens, people aren’t scrambling,” he said.
You can start the conversation by asking about their long-term financial goals, then ease into how you can help with the day-to-day finances if they need it, said John Sweeney, executive vice president of retirement and investment strategies with Fidelity Investments. The key is to find out what legal documents they have and get as much information about their finances as possible.
To encourage them to open up, prompt them to share their knowledge and experience with you. “Ask what they did with their own parents when they were no longer able to manage their finances and how your parents would like you to handle it,” Sweeney said. Or you can use these other conversation starters.
2. Get Power of Attorney
Your parents might have named each other in their power of attorney. But Seal said that it’s important for them to name a second agent — which could be you or your siblings — in case something happens to their spouse.
If your parents haven’t designated you as their power of attorney, you won’t be able to take over your parents’ finances if they need the assistance. This legal document lets you handle financial transactions for them if they are unable to do so themselves. It’s important that they meet with an attorney to determine what authority they want to give you and at what point they want the power of attorney to take effect.
Your parents must be competent when they sign this document for it to be valid. So you want to get these documents in place as soon as possible. Otherwise, you’ll have to go to court to be appointed guardian or conservator, Seal said.
3. Monitor Your Parents’ Mail
Some of the first signs that your parents are having trouble with money tasks might arrive with the mail. Look for late-payment notices, which could indicate that they’re forgetting to pay bills.
And pay attention to the number of solicitations they’re getting for donations or sweepstakes. If they’re getting a lot, you should ask your parents whether they’re giving money to these groups, Merlino said. If they are, “that could be a huge red flag that money management skills have started to deteriorate,” he said.
It’s also a good way to start stepping in and helping them. Ask them what organizations or causes they care about most, then help them develop a giving plan that allows them to make donations to those groups only. Go to the Direct Marketing Association’s DMAchoice website to help them opt out of direct-mail offers. This should cut back on the legitimate charitable requests they get. And tell them to toss any solicitations they continue to get.
4. Help Them Check Their Credit Report Online
A good way to find out how your parents are handling credit is to offer to walk them through the process of getting their credit report online, Merlino said. Anyone can get a free report from each of the three credit bureaus — Equifax, Experian and TransUnion — at AnnualCreditReport.com.
During the process, they’ll have to enter personal information — including their Social Security numbers — that you will need if you take over their finances entirely. And the report will help you see which credit accounts and loans they have, and what is owed. You will also learn whether there are any accounts they don’t recognize, which could signal that they’re victims of identity theft.
5. Offer to Take Over an Unpleasant Financial Task
You can ease your way into managing your parents’ money tasks by offering to take over one they likely enjoy the least — preparing their tax return. Tell them that by taking this responsibility off their hands they’ll have more time to do what they enjoy. And doing their tax return — or gathering the necessary documents to give to a tax preparer — will give you a wealth of information about their finances that you’ll need going forward, such as their sources of income.
6. Take Control of Bank Accounts But Provide Spending Money
If bills aren’t being paid or your parents aren’t being careful with their money, you’ll need to step in. You can explain to them “that you’ve seen run-ups with their spending and just want make sure they are taken care of and don’t run out of money in retirement,” Sweeney said.
However, you shouldn’t cut off their access to cash entirely, Seal said. Set up two accounts — one for bills and necessities, and one with only enough cash to cover monthly spending on things such as outings with friends. Let your parents know that you’ll take care of the bills, and they’ll have the money they need to do what they want, Seal said.
Make sure your name is put on the account as an agent, not a co-owner, Seal said. This will give you the legal authorization to write checks and make payments on your parents’ behalf. But it provides more protections for your parents. For example, if you were a co-owner of the account and were sued, your parents’ assets would be at risk, Seal said.
7. Make Your Power of Attorney Known
As you start handling more and more of your parents’ financial responsibilities, you’ll need to reach out to their insurers, financial institutions and service providers to let them know you are their power of attorney. Seal said it’s best to do this in person with your parents or on the phone with all of you on the line.
Give the companies a copy of the power of attorney instead of giving them the original document. Companies might also ask you to fill out additional forms to establish control of the accounts. Make sure you have the address changed on the accounts to your address so that you get statements, Seal said.
8. Get Your Siblings on Board
If you have siblings, you should ask them to help you handle some of these financial tasks, Merlino said. Even if they can’t — or won’t — assist you, you still need to keep them apprised of what you’re doing.
“One of the most important things is communication with your siblings,” Seal said. “If you don’t communicate and suspicion grows that you’re mishandling things, that could end up in litigation.” Make sure you keep careful records of all financial transactions you make for your parents so there won’t be any question about how their money is being handled.
9. Expect Resistance
It’s a lot easier when your parents realize that they’re having problems handling their finances and come to you for help, Sweeney said. But it’s more likely that your parents won’t want to give up control. “By the time you’re able to intervene, there have usually been some missteps,” Seal said.
So you should give them specific examples of their mistakes. “Show them they really do need help,” Seal said, but assure them they’ll still have access to money when they need it. And let them know that this is “an act of love to help make their lives easier and ensure they’re in good financial shape throughout their later years,” Sweeney said.
If your parents continue to reject your assistance and lack the capacity to handle their finances, both Seal and Merlino said it is okay to take actions without telling them — such as taking away their credit cards — to prevent their financial ruin.
10. Get Professional Help
Managing your own finances can be difficult enough. Handling someone else’s can be even more stressful because you don’t want to make mistakes with your parents’ money. That’s why hiring professionals can be a smart move.
Also, your parents might be more receptive to letting a third party — rather than their child — help them. Fidelity’s Intra-Family Generational Finance Study found that most older parents are more comfortable talking with an investment professional than with their own children about the specifics of their financial situation.
If your parents need help crafting a comprehensive financial plan, you can find a certified financial planner through CFP.net. For assistance with tax-return preparation, you can find a certified public accountant through the American Institute of CPAs.
Visit the National Academy of Elder Law Attorneys to find an attorney who can help you and your parents take the right legal steps to protect their finances. You also can hire a geriatric care manager who can help coordinate care and services for your parents. You can find one through the Aging Life Care Association.
A final note: There is nothing easy about taking over your parents’ finances, even if they don’t resist your attempts to help. “Prepare to be overwhelmed by this because things seldom go as planned,” Merlino said.
However, it’s important to remind yourself not to get frustrated with your parents because they no longer have the ability to make smart decisions with their money. “Don’t get angry at them for things they can’t control,” he added.