If you are the adult child of aging parents, you may find yourself in the position of someday having to assist them with handling their finances. Whether that time is in the near future or sometime further down the road, there are some steps you can take now to make the process a bit easier.
Mom and Dad, can we talk?
Your first step should be to get a handle on your parents' finances so you fully understand their current financial situation. The best time to do so is when your parents are relatively healthy and active. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis.
You can start by asking them some basic questions:
- What financial institutions hold their assets (e.g., bank, brokerage, and retirement accounts)?
- Do they work with any financial, legal, or tax advisors? If so, how often do they meet with them?
- Do they need help paying monthly bills or assistance reviewing items like credit-card statements, medical receipts, or property tax bills?
Make sure your parents have the necessary legal documents
In order to help your parents manage their finances in the future, you'll need the legal authority to do so. This requires a durable power of attorney, which is a legal document that allows a named individual (such as an adult child) to manage all aspects of a person's financial life if he or she becomes disabled or incompetent. A durable power of attorney will allow you to handle day-to-day finances for your parents, such as signing checks, paying bills, and making financial decisions for them. This document is not a one-size-fits all so you should confirm that it still meets your parents’ needs.
In addition to a durable power of attorney, you'll want to make sure that your parents have an advance health-care directive, also known as a health-care power of attorney or health-care proxy. An advance health-care directive will allow you to make medical decisions according to their wishes (e.g., life-support measures and who will communicate with health-care professionals on their behalf).
You'll also want to find out if your parents have a will or any trusts. If so, find out where it's located and who is named as personal representative or executor. If the will was drafted more than three to five years ago or if there was a major change to their situation, your parents may want to review it to make sure their current wishes are represented. You should also ask if they made any dispositions or gifts of specific personal property (e.g., a family heirloom to be given to a specific individual).
If there is a trust, you should confirm the type (revocable or irrevocable) and confirm whether the trust holds any assets. One of the primary reasons a revocable trust is typically drafted is to provide for a smooth transition of handling one’s financial affairs. Thus, it is critical to review the trustee provisions – not only who is named as initial trustee and successor trustee, but how the successor trustee takes over. There are a host of issues that should be addressed with the trusts that are beyond the scope of this article.
Prepare a personal data record
Once you've opened the lines of communication, your next step is to prepare a personal data record that lists information you might need in the event that your parents become incapacitated or die. Here's some information that should be included:
- Financial information: Bank, brokerage, and retirement accounts (including account numbers and online user names and passwords, if applicable); real estate holdings
- Legal information: Wills, trusts, durable powers of attorney, advance health-care directives (and the details behind such)
- Medical information: Health-care providers, medication, medical history
- Insurance information: Policy numbers, company names
- Advisor information: Names and phone numbers of any professional service providers
- Location of other important records: Social Security cards, home and vehicle records, outstanding loan documents, past tax returns
- Funeral and burial plans: Prepayment information, final wishes
If your parents keep some or all of these items in a safe-deposit box or home safe, make sure you can gain access. It's also a good idea to make copies of all the documents you've gathered and keep them in a safe place. This is especially important if you live far away, because you'll want the information readily available in the event of an emergency.
Don't be afraid to get support and ask for advice
If you're feeling overwhelmed with the task of handling your parents' finances, don't be afraid to seek out support and advice. A variety of local and national organizations are designed to assist caregivers. If your parents' needs are significant enough, you may want to consider hiring a geriatric care manager who can help you oversee your parents' care and direct you to the right community resources. Finally, consider discussing the specifics of your situation with a professional, such as a certified financial planner that can serve as the quarterback of the overall situation, an estate planning attorney, and/or accountant.
Modified by Oasis Wealth Planning Advisors with initial preparation by Broadridge Investor Communication Solutions, Inc. Copyright 2016.