Protecting your elderly parents' money can be a significant help to them, both financially and emotionally. You don't have to be a financial expert to help them. You just need to know what questions to ask and what actions to take.
Five Steps to Protecting Your Elderly Parents' Money
The role you take in helping your parents manage and protect their money can be as varied as being their sounding board to actually taking over their finances. Either way you will need to follow the same steps, starting with a review of their needs and ending with an ongoing review of their financial situation.
Step 1: Discuss Their Needs and Goals
Sit down with your parents and offer to help them review their financial situation and make some suggestions. Some parents may welcome the assistance; however, be prepared for resistance. It's not easy for your parents to admit that they might need help. The more comfortable they become with sharing their personal financial information, the more likely they will be to share the detailed information which you will need in order to help them protect their financial situation.
Your goal should be to review the following:
- Monthly income and expenses - You can either gather this information from your parents or review their incoming bills, receipts and tax returns.
- Available funds - Bank and investment statements will show you available funds and give you information on the amount of funds your parents have been withdrawing from their accounts.
- Goals - Ask your parents what they want to accomplish with their money. The more you know about their goals, the better able you will be to help them plan their finances so that their money is protected, while they accomplish their goals:
- Do they want to travel more or spend more money on specific interests?
- Are they tired of the time and effort that they are spending moving funds between accounts?
- Are they concerned about future expenses they may have such as medical expenses or house repairs?
- Questions - Many elderly people have questions about financial subjects they have been embarrassed to ask, such as reverse mortgages and long term care insurance. Volunteer to get them the answers they need.
- Legal situation - This is a prime time to see if your parents have set up any legal arrangements which might impact how their money is spent such as a Power of Attorney or a living trust or will.
Step 2: Review Their Financial Situation
After you understand your parents' financial needs and goals, you need to find out if they have enough income to meet their needs. Work with them to review their financial accounts, sources of income and another other situations which might affect their cash flow. For example:
- Income sources - Are they are living on a fixed income such as Social Security with supplemental income from an annuity, an Individual Retirement Account (IRA) or a 401K retirement plan?
- Investments - Where is their money invested? Is it in conservative fixed income investments such as bonds and certificates of deposit or do they have large portions of their investments invested in higher-risk stocks? This could a good time to have a financial professional do a review of their portfolio and give recommendations on changes that should be made in your parent's estate planning.
- Taxes - Do your parents have any tax liabilities such as unpaid income or mortgage taxes? Check out special programs for seniors with tax problems such as property tax deferral.
Step 3: Set Up a Process
One of the greatest things you can do to help your parents protect their money is to make it easier for them to manage their money. Many seniors want to avoid the banking time required to move money between accounts. Poor vision and dexterity problems can make bill paying difficult. You can help by setting up:
- Direct deposit - If your parent receives a check from Social Security or another Federal retirement program, you can arrange for their check to be automatically deposited into their bank account. This no-cost service can be set up by the bank which will be receiving the funds.
- Automatic transfers - Monthly IRA withdrawals can be automatically transferred to another account, putting the money where your parent needs it without them having to make a trip to the bank.
- Automatic bill payments - Minimize the number of checks that have to be written by arranging to have recurring bills automatically paid from their bank account. Utility bills, mortgage payments, rent and car payments as well as minimum payments on credit card bills and loan payments can all be paid automatically.
Consider having your name added onto their accounts or having a power of attorney so that you can complete their banking and bill paying activities. This is particularly important if one or both parents are not in good health, in a nursing home or in an assisted living facility.
Step 4: Implement Safety Programs
The elderly are frequent targets for telephone and mail scams. Protect your parents from junk mail and junk phone calls by entering their address and telephone number on Do Not Mail and Do Not Call lists.
Step 5: Implement Monthly Reviews
Whether you are in direct control of your parents' money, or merely functioning as an advisor, it is important for you to review their financial activities each month.
- Are the bills getting paid?
- Are the direct deposits and automatic transfers making their income more accessible to them?
- Are your parents comfortable with their financial situation?
- Do you still have some questions to answer and procedures to put in place?
Dignity and Independence
Protecting your elderly parents' money is important to their financial health. As you work with them, be sure to remember to protect their dignity and feeling of independence. Ask them what they want. Attempt to get their approval on changes. Help them understand the value to their financial safety as you take actions on their behalf to protect their money.