The passage of time can catch you off-guard – years fly by and suddenly you realize that your parents need help when it comes to managing their finances. It happened to me just this year. My parents went from living independently to suddenly needing my help managing their financial lives, and I found myself thrust into that role very quickly. It reminded me that there are a lot of moving parts to consider that I want to share with you.
Whether that time for you is imminent or somewhere in the unknown future, a critical first step is simply having a conversation with your parents about their finances. Make sure you are covering these topics:
Bill paying: Do they have enough current income to pay their bills, and do they have a process to make sure payments don’t accidentally get missed? This is especially important for annual life insurance or long-term care insurance premiums. Policies they have been paying for years could lapse due to non-payment. (I literally had a client 2 weeks ago tell me that her parents are in the early stages of Alzheimer’s and had assured her they have LTC insurance in place…until they made the earth-shattering realization that her parents had accidentally stopped paying the premium 18 months ago and the policy had lapsed. This stuff DOES happen in real life.)
Do they have critical legal documents in place? We all think of a will as important, but do they have a financial power of attorney that will allow someone to act in their place if they are incapacitated? If you don’t have a financial POA and they become incapacitated (like a stroke, for example) you’ll have to go to court to be granted that financial power, which is both emotionally difficult and expensive. How about their healthcare directives and a healthcare power of attorney? You’ll need that too.
If they do have long term care insurance to help pay for their care later in life, go ahead and read the policy to see when they’re eligible for benefits. Many plans pay for in-home care, so don’t miss out on possible benefit payments by waiting too long. If they don’t have long term care insurance, then it’s good to know what your financial responsibility might be in the future or start reading up on Medicaid rules to help them navigate that maze of rules.
Next up, are their IRA beneficiary designations up to date? Keep in mind that beneficiary designation forms override the terms of the will, so they are extremely important. Additionally, there are critical tax consequences when IRA accounts are passed to the next generation without properly completed beneficiary forms. Let’s not give any more of your parents’ hard-earned money to the IRS than we have to!
Are their accounts titled in such a way that the intent of the will would be circumvented? For instance, if your mom has a joint bank account with your sister, your sister will own the entire account at your mom’s passing, no matter what the will says.
Now let’s make sure you can actually find everything if and when they are physically incapacitated and need your help: Do you know where their legal documents are kept (especially that financial POA)? How about their bank and investment accounts, as well as which companies their insurance is with? Envision a moment where you can’t ask them any more questions, and make sure you have a clear course of action ready to go. You might have to pick up their financial baton and run with it on a moment’s notice.