Stepping in and helping parents with finances can be a challenge. In some instances, the parent needing the help may have managed finances for decades and be reluctant to accept help. At the opposite end of the spectrum, the parent may be a recent widow or widower who always left financial matters to their recently deceased spouse. Whatever the specific situation, if you find yourself in the situation of assisting your parent or parents, here is a framework you can use to get a handle on their finances.
Needs – identifying financial needs is an important first step in helping parents with finances. How much is being spent, and of that spending, what is discretionary and what is non-discretionary? If a budget doesn’t already exist, you can use bank and credit card statements to build a budget. If you aren’t sure what credit card accounts your parent has, you can obtain a credit report. Although the report won’t typically show checking accounts, it should list all credit accounts, including credit cards.
Financial Resources – once you have an idea of what the budget should be, the next step in helping parents with finances is to determine what resources your parent has. What retirement income – social security and any pensions – are available? If one parent has recently pre-deceased another, be aware that the surviving parent’s income will likely change. Pensions may provide a survivor benefit to the surviving spouse, while social security typically pays the higher of the surviving spouse’s benefit or the benefit for the deceased spouse.
Beyond income, you’ll want to make a list of financial accounts. In many instances, this is straightforward and the parent may already have a list of accounts at the ready, or an advisor who can easily provide that information. In other instances though – most often when the parent who handled finances was a child of the Depression – there may be myriad accounts and just tracking down the accounts can be an exercise in forensic accounting. If this is the case, follow the paper trail – start by looking for statements, but then look to tax returns and transactions to find other accounts. Plan on spending a good bit of time rounding everything up if you find yourself in this situation.
Other Advisors – if your parents had financial means, they may have worked with outside advisors. If so, don’t hesitate to get in touch with them as you piece together the financial picture and develop a plan to assist your parent(s) moving forward. An existing financial advisor, accountant and attorney can all be helpful as you provide assistance.
Wishes– find out what your parent’s or parents’ wishes are for their estate and make sure those wishes are reflected in their estate documents. If the estate documents – the will and powers-of-attorney – aren’t up-to-date, work with an attorney to update them. Aside from wishes about the estate, talk to them about what they want to do in the years they have remaining. If they are living on their own, would they ever consider moving to assisted living, and if so, when? Is there anything on their bucket list they would like to do? Ensuring their needs are covered is key, but if they can fulfill some of their wishes, it will add a good deal to their quality of life.
Mechanics – the mechanics of assisting a parent involve both organization and access. Moving accounts online and setting up e-billing wherever possible can make paying bills much easier. Moving investment accounts online can make sense as well, as it will allow you to monitor account activity. As for taxes, systematically collecting all relevant documents can make things easier when it is time to file a return, and using a recent return as a method to ensure you’ve included income and deductions is a good thing to do. Beyond organization though is the question of access – do you have access to funds to pay bills and make other financial decisions?
A power-of-attorney is one possible solution, and if your parent grants you power-of-attorney you will essentially have the same rights your parent does when it comes to financial accounts. Such sweeping authority may not be necessary, and if the question is simply having access to an account from which you can pay bills, a joint account might make sense. However, be aware that simply adding you to a joint account can have gift tax consequences, so make sure you understand what those are before moving forward.
The transition to helping parents with finances can be stressful for everyone involved. Following a defined framework can help reduce that stress and ensure you provide the support your parent needs.
Micah Porter, CFP, CFA is a financial advisor in Decatur (Atlanta), and you’ll find his contact information here.