Managing Your Parents' Money
Find out as much as you can about your parents' finances now so that you're prepared to step in later if necessary.
A few months before my mom's 66th birthday, a doctor diagnosed her with Alzheimer's disease. At that time -- November 2008 -- she was exhibiting symptoms of the early stages of dementia, such as short-term memory loss.
In July 2009, another doctor confirmed the Alzheimer's diagnosis and also said she had white-matter disease -- another possible contributor to her dementia. By then, she could still handle daily tasks, such as cooking and bathing, and she was still active socially. Yet she didn't know what day of the week, month or year it was. She couldn't recite a sequence of three words the doctor had said just a minute earlier. The doctor told her that she should stop driving and that someone else should handle her finances.
That someone else was me. Handling my mom's finances wouldn't be too difficult, I thought. After all, I've been writing about personal finance on Kiplinger.com for nine years. Boy, was I wrong.
For starters, managing someone else's finances is nothing like managing your own, because you don't have all the information you need (and getting that information from someone with memory problems is especially tough). The hardest part, though, is the role reversal. "This is the person who might have told you the importance of paying your bills on time," says Linda Fodrini-Johnson, president of the National Association of Professional Geriatric Care Managers. And now you have to tell your parent what to do.
Research shows that even in the early stages of Alzheimer's, people have trouble with simple financial tasks -- and they are more likely to become victims of fraud. If no one steps in, they might not have any money left by the time they reach the later stages of the disease. "You feel like you're taking control away from them, but it's the disease that's doing that," Fodrini-Johnson says. "You have to remind yourself that you're securing your parent's future."
Usually, parents are reluctant even to share financial information with their children, let alone relinquish control, say financial planners and elder-law attorneys. I've been lucky because my mom has, for the most part, willingly let me take over her finances.
Ideally, communication begins well before a parent needs help, says Greg Merlino, a financial planner and president of Ameriway Financial Services, in Voorhees, N.J. Otherwise, he says, "it's like trying to put together a jigsaw puzzle without the box to see what the ultimate outcome will be."
One way to start the conversation is by talking about your own situation: "Mom and Dad, I recently met with a lawyer to draft powers of attorney for financial and health situations so that my spouse can handle things if I'm ever in a situation in which I can't." Then ask your parents what protections they have in place. Or you can mention an article you've recently read (such as this one) about the importance of getting your parents' personal-finance information in case they ever need help managing their money.
If your parents are receptive, find out where they keep lockbox keys and important documents, such as the deed to their home, tax returns, wills and powers of attorney. Get a list of their banks, doctors, accountant, attorney, mortgage company, financial planner and brokerage firm. If your parents are retired, ask where their income comes from (pension, Social Security and IRA withdrawals, for example). Learn their medical history (such as any drug allergies and past surgeries) and what prescription drugs they take. And if they're willing, get their Social Security numbers, as well as numbers for their bank and investment accounts and insurance policies. Find out who the beneficiaries are. Be sure to ask what their final wishes are and how they want funeral arrangements handled.
Arm yourself with legal power
To help your parents manage their money when they no longer can, you will need power of attorney. Power of attorney lets you handle any financial transaction -- from signing checks to selling your parents’ home. This document is like the key to a car -- without it, you can’t drive, says Stephen J. Silverberg, an elder-law attorney in Roslyn Heights, N.Y., and a former president of the National Academy of Elder Law Attorneys (NAELA). However, you can’t wait until your mom or dad doesn’t have the mental capacity to handle financial transactions before you get this document. For a power of attorney to be valid, your parent must be competent when he or she signs it. Otherwise, you’ll have to go to court, and a judge will have to deem your parent incompetent.
Make sure you have a durable power of attorney, which takes effect immediately. A springing power of attorney will not take effect until your parent is deemed incompetent by a doctor, who may be hesitant to sign anything that might lead to a legal dispute, Silverberg says.
If you have siblings, all of you can be given power of attorney, and the document can specify whether you must act together. To prevent abuse by one child, the document can build in oversight by requiring anyone exercising the power of attorney to answer to a third party. It can also limit powers to prevent you (and your siblings) from changing your parents’ wills or beneficiary designations on life-insurance policies.
The power of attorney should conform to the laws of the state where your parents live (or states, if your parents divide their time between two). Silverberg recommends hiring a lawyer who specializes in elder law to draft this document. You can search for an elder-law attorney who practices where your parents live at www.naela.org.
Many financial institutions and brokerages have their own forms that must be signed by the account holder before you can gain access. Be sure to give the institutions a copy of the power of attorney (not the original) soon after it is signed. If you wait years to do this, you may have to get your attorney to recertify the document. Also send copies of the power of attorney to the credit-card and insurance companies at which your parents have accounts and policies so that you will be able to make transactions on their behalf.
Make sure your parents also have a health-care decision-making document, such as a health-care proxy, or living will (different states call it different things). It will give you authority to make medical decisions for them when they can’t. Let your parents’ doctors know you have this document. Your parents might also have to sign a Health Insurance Port-ability and Accountability Act (HIPAA) release form, Silverberg says, to give you access to their medical documents.
If your parents are having trouble handling their finances, don’t expect them to reach out to you for help. "Parents sometimes will go through self impoverishment so they won’t have to be a burden," Merlino says.
Be on the lookout for signs that your parents are having problems. If a parent talks about the same thing again and again or forgets conversations you recently had, don't write it off. Investigate. "A lot of times, people are in denial when they start to see their parents forgetting," says Carlo Panaccione, financial planner and president of the Navigation Group, in Redwood Shores, Cal. But if you start seeing obvious signs that your parents are having difficulty making decisions, you need to get the whole family involved so one person isn't the bad guy, says Panaccione.
Granted, that can be a little easier said than done, especially if one child is physically or emotionally closer to the parents and would be a natural choice to step in and help. Ask a third party -- a doctor, accountant, financial planner or geriatric manager -- to suggest that your parents let you lend a hand. They might be more receptive if the advice comes from a professional they trust.
As you start stepping in, do so in a way that preserves your parents' dignity, says Fodrini-Johnson, who has been providing elder-care services in the San Francisco Bay area since 1989. "You can't just go in and take over," she says. Some things you try may not work, so be ready with alternatives. And if your parents balk at your efforts entirely, it's okay to be sneaky to gather the information you need to help them, she says.
One strategy is to suggest that you take over one of their financial responsibilities, such as preparing their taxes, so that they have more time to do what they enjoy. For each responsibility you take away, suggest replacing it with a pleasurable activity -- such as a weekly lunch date -- to mitigate the loss, says Fodrini-Johnson. And be sure not to take away all their financial responsibilities at the same time.
The elderly can be easy prey for financial scams. Tell your parents that you want to protect them by helping them go through their mail and monitor their accounts for unusual activity. Help them get copies of their credit reports at Annualcreditreport.com to make sure they aren't victims of identity theft. And put your parents on do-not-call lists. Most telemarketers will stop calling once a number has been on the National Do Not Call Registry for 31 days. You can register home and cell-phone numbers free at www.donotcall.gov or by calling 888-382-1222.
Offer to help them develop a spending plan (don't call it a budget). This will give you a chance to see how much money they have coming in and how they're spending it. If they're having a lot of trouble managing their finances, you'll need to limit their access to cash. You can start by setting up automatic payments for regular bills to reduce the number of checks that need to be written. If you have access to your parents' checking account, limit the amount of money in it by regularly transferring funds to a savings or money-market account. And if spending is out of control, consider giving your parents a secured credit card, which allows them to make a deposit that becomes their credit limit, and taking away other credit cards.
During this process, pay attention to how many checks or credit-card charges are made to charitable organizations and other groups. My mother would say yes to every organization that called or mailed her a donation request and was even writing checks to some groups several times a year. These were groups to which she had no connection and causes I knew she wasn't passionate about. So I asked her which organizations mattered most to her, and we developed a giving plan that included only those groups. I closely monitor her mail now and toss any solicitations from groups that aren't on the list.
If you find that your parents have been the victims of a scam or entered into a questionable financial relationship, consider putting them on a cash allowance, Panaccione says. "A lot of people will avoid it because they are afraid of conflict with their parents," he says. "But what's the alternative? Let them go until they have nothing left?" Tell your parents that you're giving them a certain amount each week or month to spend as they please and that you'll take care of the bills. And be sure to let them know that you're doing this not because you're trying to control them, but because you love them.
In the two years since my mom was diagnosed with Alzheimer's, I have gone from being her "financial adviser" to her full-time money manager. I go through her mail, monitor her checking account and, as holder of her power of attorney, pay all the bills. I give her cash each week for outings with friends. And -- to be accountable to my sister, who lives several states away -- I keep a record of all of these financial transactions on a spreadsheet.
Initially, I was uncomfortable making financial decisions for my mom. But after someone almost conned her into wiring him several hundred dollars, I knew I had to do everything I could to protect her and her money. She protected me when I was a child and couldn't take care of myself. Now it's my turn to take care of her.