The Complete Guide to Managing Your Parents' Finances When They Cannot: A Step-by-Step Plan to Protect Their Assets, Limit Taxes, and Ensure Their Wishes Are Fulfilled

By Bill Swan

Every year, millions of Americans transfer their finances to their children or other family members because they reach a point at which they can no longer manage them alone. For those who are about to start managing the finances of their parents, it is important to know exactly how to protect their assets, manage their taxes, and live up to their wishes. This book has been written to do just that, providing a comprehensive walkthrough of what you can expect and how to successfully handle your parents finances.

To start, you must learn the basics of managing money that is not your own. You will be provided with a step-by-step chapter on how to keep track of funds, maintain the same accounting methods your parents have used for decades, and keep everything organized and separate from your own. You will learn how to evaluate sources of income including how to receive and manage Social Security, 401(k), and other retirement plans as payments are made. Additionally, you will learn how to balance their expenses, including a budgeting sheet to help you maintain the same level of expense they expect.

You will learn how to budget accordingly, depending on where your parents are living and what their medical expenses might be. A chapter on insurance and medical coverage is included to help you understand how much money you can expect to set aside for these expenses and how much should be covered by programs such as Medicaid. Learn how to maintain housing for your parents as well, whether they are in assisted living or staying with you. A guide on how to talk to your parents about fraud and keep them away from potentially dangerous opportunities will make it easier for you to keep a handle on their finances without taking away their freedom.

Dozens of men and women who have gone through this same situation, and also professional finance managers, have added their expertise to this book, providing firsthand accounts of how they were able to manage their own parents accounts and what you can expect. You will learn the difference in tax laws for the retired and what you will be required and not required to pay as a result of their age. It can be daunting when you first take control of your parents finances, but with this book in your hands, you should be able to quickly and efficiently take the reins and maintain the quality of life they have grown accustomed to.

Atlantic Publishing is a small, independent publishing company based in Ocala, Florida. Founded over twenty years ago in the company president’s garage, Atlantic Publishing has grown to become a renowned resource for non-fiction books. Today, over 450 titles are in print covering subjects such as small business, healthy living, management, finance, careers, and real estate. Atlantic Publishing prides itself on producing award winning, high-quality manuals that give readers up-to-date, pertinent information, real-world examples, and case studies with expert advice. Every book has resources, contact information, and web sites of the products or companies discussed.

This Atlantic Publishing eBook was professionally written, edited, fact checked, proofed and designed. The print version of this book is 288 pages and you receive exactly the same content. Over the years our books have won dozens of book awards for content, cover design and interior design including the prestigious Benjamin Franklin award for excellence in publishing. We are proud of the high quality of our books and hope you will enjoy this eBook version.

• Language: English
• Publisher: Atlantic Publishing Group Inc.
• Release date: Dec 31, 2008
• ISBN: 9781601385413

Book preview

CHAPTER 1

Thinking About Your Parents’ Finances

There are multiple reasons for wondering if you should think about your parents’ finances. Maybe you have not had the conversation with your parents about their finances yet. Maybe they are refusing help, or you are seeing signs that, indeed, there may be trouble coming soon. These reasons are among the few that made you get a copy of this book. Are you worried over nothing? Are you seeing signs that tell you something is wrong? What would you do if there was something wrong? The answers can be obvious and not so obvious, but there will be signs when you have no choice but to get involved.

There may come a time when you may have to deal with the possibility of needing to take over your parents’ finances. While this is not an easy topic to handle, using the guidelines provided in this book as a first step when considering this option will help you with gain knowledge and benefits for both the parents and child. This book will examine some basic guidelines to help the person who must manage another person’s finances.

As you read through this chapter, you will learn about what lies ahead of you in this situation. You will also learn of the benefits to not only your parents, but to yourself, as well. This chapter will also cover the basics in regard to managing your parents’ money.

THE ROAD AHEAD

Have you ever thought of what your parents might be doing in 20 years? This is a question that not many people often think of. Perhaps you never really thought of it, either, or maybe you have the image of your parents living happily into their old age, enjoying their lives and their grandchildren or great-grandchildren.

Maybe there have been thoughts about what would happen if something occurred. The likeliness of one of them dying may have crossed your mind in recent years; or maybe you are wondering how they would cope if they needed to move into a nursing home. Perhaps you never thought about these possibilities until recently.

It is also possible that you have never considered how your parents handle their finances, or if they could afford what they currently have. This is especially true if one parent dies and you realize that you are not sure if the surviving parent can maintain their current lifestyle. While Medicaid will handle many health issues, what happens if a long-term medical crisis strikes? And what happens if the surviving parent is not the one who handled the finances? There is also the possibility that the surviving parent, while able to handle the finances, is not able to handle the daily duties like buying food, handling medication, or knowing how to deal with being alone.

There are many reasons that adult children tend not to worry about any of this until it is forced upon them, such as:

• They are your parents. They dispensed the advice on a range of things, including finances and living better. They have known what to do for years, or at least made it look like they did. They do not need you to help plan their estate, draw up a will, or handle Medicare and their finances.

• It is not any of your business what they do with their money. As you grew up, they learned to let you make your own decisions, so what right would you have to ask them about theirs? And you do not want to imagine the conversation where you ask Mom or Dad where their financial papers are kept. Asking about a will or the estate may give the appearance you are greedy.

• When a parent dies, it hits a nerve. It does not matter if you love them, or even if you get along with them. When a parent dies, time stops, life stops, and it may seem as if there is no tomorrow. But, even if you have seen others go through this, you may have the mentality that your parents will be around for years, and you may feel that you do not need to think about it.

• Having a discussion with your parents about their money and their lives can be an uncomfortable conversation. So why bother?

THE TOTAL CAREGIVER ROLE

While the main focus of this book is about money and financial management, your parents (or surviving parent) will likely need more help from you than helping set up automatic payments or having their home equity provide income in later years. It is quite possible your parents will need more assistance outside of the financial caregiver duties.

• Caregiving for your parents can be a demanding, intensive commitment, and it can be long-term. If you start helping your 70-year-old widowed mother draw up a financial plan for the rest of her life, you may be helping with her finances until she reaches 80, 85, 90, or beyond. The decisions you have to make over the years could change from how to afford to keep your mother in her house to how much money Medicare will pay for long-term care— or how to minimize the tax bite on her estate when she dies.

• Caregiving can become draining and exhausting, particularly if your parents’ financial affairs are not in order, and you may find it does not receive all the appreciation it deserves. A parent with dementia may have no idea how much you do for them, and a clear-headed parent may resent being told that he or she does not have the money to keep taking monthly gambling trips to Las Vegas or ordering two dozen pay-per-view films every week.

• Caregiving can also lead to conflict with your siblings, or your surviving parent’s partner or second spouse. Even if you have your parents’ support and legal authority, the rest of the family may disagree with your decisions or think you are exaggerating the problems — they no more want to think of your parents being old or mentally incompetent than you do. They also may feel you are trying to get special benefits in the will. In worst-case scenarios, you could be accused of spending your parents’ money on yourself, or of undue influence over their financial decisions.

• Caregiving demands time. The more help your parents’ needs, the less time you have for your job, spouse, children, and for whatever you do to relax and de-stress. The impact on your life — financial and emotional — will almost certainly be much bigger than you imagine.

• Caregiving is no picnic for your parents, either. Acknowledging that disability, death, or long-term illness lies somewhere down the road is not a pleasant experience for them, either. Asking you for financial help and guidance — whether they want to give you a power of attorney or have you look for a nursing home — means accepting aging and weakness, and admitting they no longer have full control of their lives. It also means sharing confidential, personal information with you and possibly, at some point, giving up their power to make their own decisions.

POSSIBLE ISSUES

If the day comes when you are needed to help manage your parents’ finances, it should go smoothly. Even if your involvement goes smoothly, there will still be stress for both you and your parents — but the stress will be manageable.

If there is a medical crisis and you must intervene immediately without preparation, the stress will be worse. If one parent dies, the stress will increase even more. The surviving parent may be in no condition to handle the finances, the wrapping up of the other parent’s affairs, and their daily life. And there will be grief occurring with either cause.

If you have never discussed your parents’ finances, multiply the stress factor even more. If something were to happen, would you know such things as:

• Where is the living will?

• Is there a will?

• Who has authority to handle the finances?

• Who has authority to handle the legal issues?

• What is the condition of their finances?

• Where are the financial records?

• Is there a safe deposit box?

• Where is the safe deposit box, if there is one?

• Where are the legal papers?

• Are all the legal papers intact?

• Who are the lawyers, doctors, and bank people you need to find?

It is an honest assumption that you may not want to talk to your parents about their finances or how they manage their lives. It is also a very good assumption that the difficulty you will face having a conversation with them about money is nothing compared to facing a crisis and not being prepared. Having this conversation about financial matters when there is no crisis or imminent need will be less stressful than trying to accomplish all this in the middle of a crisis — whether emotional or financial.

YOUR PARENTS’ BENEFITS

One of the biggest benefits for your parents in planning ahead is the saving of their assets and resources to pass along to the younger generations. Most times, this is one of the biggest concerns of aging parents. As of 2006, nearly $95 million per year is lost during the transfer of assets between generations. Most of this is due to improper or complete lack of planning for taxes, medical needs, and missing assets.

Advance planning, no matter what form it takes, offers many other benefits to your parents once the planning is in motion. Here are some of the most important benefits:

• When it comes to investing and retirement, knowing about the 401(k) or the IRA that your parents have can help them use it more effectively. If you parents still work, ask them if they have a retirement account and if their employer contributes to it.

• Knowing the rules of Social Security and Medicaid helps, as both are complex and detailed.

• You should be aware of whether your parents will receive VA benefits. Knowing how to best use the tax codes to keep the most of your parent’s income and assets is another key issue. Both the placement and the timing of what assets are tapped — and when they are tapped — can save or cost your parents a lot of money.

• Along a similar path is estate planning. With the proper planning, your parents can minimize the tax payout, keeping more assets in the family where they wanted them to be. Estate planning also ensures your parents will know that their burial wishes are fulfilled when the time arrives. This also includes the area of living wills and final wills, which need to be clear and detailed.

• Should one parent pass away before the other, having the planning in place will help you help them maintain their financial stability and budget. Having a joint checking account, or legal authority to act in emergency situations, will save time and stress for both you and your parents.

• Having your parents go over their retirement plans with you can benefit them by having a second set of eyes to spot potential problems.

Whether your parents are young and in terrific shape, or starting to show the first signs of decline, the more you plan now, the better you can make their lives in the future — and the longer they can stay independent, living the life they choose, instead of a life they have to settle for.

YOUR BENEFITS

When looking at the benefits of advance planning, you should also look at how the issue affects you — and what concerns could potentially arise. There are many benefits to both you and your family, if you make the plans ahead of their need. Let us take a look at your side of the picture.

The Issue

Your parents will likely need you at some point in their lives. While they would not want to feel as if they are a burden — and you would hate feeling like they are — caregiving may seem like a burden to both of you at times. It is also possible that you could spend more time looking after your parents’ needs than they did looking after your needs as a child.

Being the caregiver, you will have additional demands on your time, as well as and some of your resources. This adds stress to your life and can be difficult to deal with. There may be times when you want to simply walk out the door and take a week off, but it will not be possible.

Although this book is not about caregiving, it is quite possible that along with watching your parents’ money, they will need you to provide other sorts of care, such as performing minor home repairs, doing some shopping, driving them to and from appointments, or making extra visits to spend time with them. Even if money is the only issue, tracking bills, deposits, investments, and figuring out what to do with their house are not responsibilities you can neglect. While this may seem like a lot of additional work to undertake, realize that you are not alone in considering the option of handling tasks within the family.

Potential Concerns

One central concern regarding managing parental finances is the lack of advance planning. If a coma, advanced dementia, or other serious illness leaves your parents unable to sign checks or manage their money, and there is no groundwork laid out for someone to handle the situation, you could be charged with covering the mortgage, insurance, and other monthly bills until they recover. How long can your finances handle the added payments? Would any other family members be able to offer you assistance?

While many parents will not require this much assistance, they may still feel guilty having you reorganize your life to help them manage their financial situation. However, when the time comes, they may not have much choice but to accept your help. Proper planning can help prevent the possibility that this may happen.

Caregiving is always going to be stressful. The more care you have to provide, and the worse your parents’ situation, the more stress you will feel. By putting in the work ahead of time while they are in shape to participate in the discussion and the decisions, you can reduce the stress you all may face later. It may be awkward and time-consuming to go over their finances now, but it will benefit everyone in the long run.

With this in mind, here are a few benefits to ensuring your parent’s finances are well taken care of:

• You can help your parents become financially secure in their old age.

• If you have their financial information readily accessible, you will be spared the pressure of scrambling through all their papers or trying to piece together information from tax returns.

• If you have already discussed money and their financial resources, you will know what sort of a budget you have to work with and whether your parents need to start liquidating investments.

• If you and your parents have arranged in advance for you to have the authority to help them — whether it is a power of attorney, a joint checking account, or you are the co-trustee on a revocable trust — you can do more for them than if you have to wait for a court to rule on your petition to become your parents’ guardian.

• If you have shared your concerns with your siblings and everyone has had a chance to discuss, weigh in, and modify your plans, the result will be less family conflict later. Primary caregivers often feel no one else in the family appreciates their sacrifices; even if they volunteered, they can become resentful that nobody is shouldering the burden. Siblings, meanwhile, may question your financial decisions or even your motives. Involving them in your decisions and asking for help and guidance can not only reduce strife, it will also give you more of a support system to lean on.

• If you know your parents have a will made out and that the will is up-to-date and clear about who gets what, that eliminates another possible source of trouble. There will be a smaller chance of siblings feuding over who inherits what.

• If you have made sure your parents have a living will that spells out what to do if they are in a coma, you will not have to decide yourself whether to turn off life support, and with any luck, you can carry out your parents’ wishes without having to fight the rest of your family in court.

• If you can protect your parents from elder abuse and fraud, you can avoid other kinds of tragedies, such as discovering an unscrupulous lover has stolen most of their retirement money.

• When you make the financial picture better for your parents, you make it better for yourself — and that, in turn, will make your parents’ life better. Many parents feel guilty for creating a burden on their children by not having their finances adequately prepared. With prior knowledge of your parents’ financial picture, and a working knowledge of Medicaid, you can greatly reduce the possibility of lost income or having to pull money from a retirement account early.

• Advance planning will also help reduce the feeling of uncertainty when deciding which task to handle next. Going into your parents’ financial future with at least a general direction can help you avoid indecision, lost time, and wrong turns, as well as the feelings of being inadequate and incompetent because you were unable to handle tasks that may be crucial.

Being the caregiver will have an effect on both work and personal life. You will be the one who handles the paperwork, medical forms, household management, and overall budgeting. What does this have to do with parental finances? You will be the one who needs to minimize waste and lost time for both you and your parents. Getting to doctor appointments, making sure the proper forms are filled out correctly the first time, ensuring the bills are paid on time, and watching for signs of elder abuse or neglect are all part of making sure your parents’ money goes where and when it is needed to have the best outcome possible for everyone.

Two related issues must also be considered here. If you have children, this will become a family affair. Advance planning will help them adapt as well, so if there are sudden changes in your parents’ lives, your children can have a better handle on the situation. The other issue is time. If you start managing your parents’ lives when they are 70 and they live to be 92, you will be providing care for most of those 22 years. You, too, will be aging. Your children may need to step in to handle tasks that neither you, nor your parents, can manage anymore. Having plans in place can help them know where — and how — to do what is needed.

MANAGING THEIR MONEY – THE BASICS

• Now that you have decided to take on this task, however small or large, you