Financial Planning for Your Aging Parent

“To care for those who once cared for us is one of the highest honors” – Tia Walker

As we age, so do our loved ones. In childhood, our role transitions from being nurtured to becoming the caregiver. This involves taking on additional responsibilities and helping make choices that your parents would usually handle themselves. Eventually, if a parent develops a medical condition like Alzheimer’s or dementia, you may find yourself making decisions on their behalf, which can be quite daunting. Additionally, supporting aging parents may lead to unexpected expenses that could disrupt your own plans. This is why financial planning for aging parents is an important process to consider. Balancing your family’s needs with those of aging parents can feel overwhelming, but strategic financial planning can ease the burden.

How To Approach Aging Parents About Financial Planning

Start by discussing with all parties involved. Keep in mind that this conversation can be quite stressful for a parent. To ease this, prepare what to say and approach the topic with empathy and respect. Plan to discuss what your parent’s wishes are for their senior years. It's important to assure them that your intent is to assist them in enjoying their golden years. Ensuring they feel included and collaborating on a plan together is crucial. View this as a partnership. As time goes on, it's necessary to reassess roles and responsibilities since capacities may shift.

The Essentials of Reviewing Your Parents’ Finances

Gathering comprehensive information about your parents’ finances is a crucial first step in planning for their future. This task might seem daunting but tackling it upfront is far easier than attempting to piece things together later, especially if cognitive decline or dementia becomes a factor. Consider starting by gathering your parents’ last two tax returns, which will contain much of the information you need. By creating a clear financial picture now, you can help ensure a smoother decision-making process when managing their care and long-term needs.

Build Your Parents’ Balance Sheet

Make a list of their income, expenses, liabilities, and assets. Those may include:

• Income - Social Security, pension, retirement plan distributions, interest, dividends, rental property.
• Expenses - Create a list of bills that must be paid monthly, quarterly, and annually. Keep a list of account numbers, usernames, passwords, and contact information.
• Liabilities – Loans such as auto, educational, credit cards, and mortgage.
• Assets – Bank accounts, investments, retirement accounts, real estate and other assets that may be part of their estate.

Collect and Protect Your Parents’ Personal Information

As you are gathering this information, you will find it helpful to compile a detailed list of your parents’ essential personal information. This may include:

• Birthdates
• Social Security numbers
• Medicare or Medicaid ID numbers
• Driver’s License details
• Health Insurance Card
• and other critical identifiers

As your parents age, having this information readily available is crucial for managing healthcare, legal, and financial matters efficiently, especially in emergencies. When collecting this sensitive data, ensure you store it securely—consider using a password-protected digital file or a locked physical folder—to protect against identity theft and unauthorized access. Proactively gathering and safeguarding these details now can help avoid unnecessary stress later.

Finally, once you have a safe place to keep personal data, gather all insurance policies, such as Auto, Home, Liability, Life, Long-term care, and Medical. Store this with their personal data.

Essential Legal Documents for Elder Care

It’s important to know what your parent’s wishes are for their golden years and beyond. While having a conversation about what their goals and wishes are is important, it’s even more critical to know what formal steps they have taken already to ensure their wishes and plans are met.

Gather and review their legal and estate planning documents, including wills, trusts, general/financial/healthcare powers of attorney, titles, and deeds. It is best to keep all this information in one safe place, like a safety deposit box or a vault. Take stock of what documents they have and consider working with an attorney or professional resource if there are gaps in their future legal arrangements.

4 Legal Documents Your Aging Parents Need

Planning for the inevitable isn’t always a top priority for everyone. Perhaps your parents have not completed or even thought about the appropriate legal documents they should have in place. Some of these documents are:

• Will – outlines how an individual’s assets will be distributed upon death and names a personal representative for their estate.
• Trust – a legal arrangement that allows a grantor to transfer assets to a trustee, who then manages the assets for specific beneficiaries. Trusts are used to protect assets, reduce taxes, and provide for the grantor’s care in the event of incapacitation.
• Power of Attorney – Designates a trusted person to make financial and legal decisions on behalf of the individual.
• Living Will or Medical Power of Attorney – Designates a trusted person to make medical decisions on their behalf if they cannot do so themselves. It also outlines the individual’s healthcare preferences.

Make sure that all documents accurately reflect what your parent(s) currently wish and are signed properly. It’s also important to talk about their preferences for what they hope for after their passing. Do they have a preference for burial or cremation? Have they already chosen a plot or casket? While these topics can be a bit difficult to discuss, they are crucial to cover.

Simplify Financial Management and Safeguard Your Aging Parents’ Assets

Once you’ve clearly understood your parents’ financial situation, you can take practical steps to reduce their financial responsibilities and protect them from risks like fraud or identity theft. By simplifying their finances and implementing security measures, you’ll provide them with peace of mind and streamline your role in their financial management.

Help your parents stay organized and protected with these steps:

• Automate Payments: Set up automatic payments for recurring bills and debt to ensure nothing is missed and late fees are avoided.
• Limit Accessible Cash: Keep only a manageable amount of money in their checking account to reduce exposure to fraud.
• Close Unused Credit Accounts: Cancel any credit cards they no longer use to minimize the risk of fraud and simplify account tracking.
• Freeze Their Credit: Prevent unauthorized access or new account openings by freezing their credit score. This is a powerful tool against identity theft.
• Designate a Trusted Contact: Add yourself as a “trusted person” on their financial accounts to receive alerts and assist in monitoring for suspicious activity.

By taking these steps, you’ll help your parents stay financially organized while safeguarding their hard-earned assets

Financial Warning Signs: When It’s Time to Step In and Help Your Aging Parents

As your parents get older, certain behaviors and situations may indicate they are struggling to manage their finances effectively. Recognizing these warning signs early can help you or your siblings to step in to offer support before small issues become major financial problems. Here are some red flags to watch out for:

• Physical Limitations: Difficulty with routine tasks like signing checks, sorting mail, or driving to the bank can signal a need for assistance.
• Memory Lapses: Forgetting to date checks, missing payment due dates, or misplacing important financial documents are common signs of cognitive decline.
• Unopened Mail: Stacks of unopened mail, including bills and bank statements, may indicate unpaid obligations or financial overwhelm.
• Budget Struggles: Complaints about not having enough money for basic living expenses could point to financial mismanagement or unexpected expenses.
• Suspicious Transactions: Sending money for online contests, email sweepstakes, or other scams is a common sign of financial exploitation.
• Unusual Spending: Noticeable changes in spending habits, such as excessive purchases or frequent withdrawals, could signal trouble.

Being proactive when you notice these signs can help protect your parents from financial hardship and fraud. Consider having an open conversation about their financial needs and exploring ways to assist them, such as automating bill payments or consolidating accounts.

Professionals Who Can Help

Remember that you are not alone in this journey. Arrange a meeting with your parent’s financial advisor, accountant, and attorney. They should all have a good understanding of your parent’s overall financial situation. And they should be familiar with who you are if they feel something is wrong. If they do not work with any of these professionals, consider consulting someone who can help guide you through the challenges of caring for your elderly parent(s).

Author: Chris Wieder, CFP® | Allegheny Financial Group | November 2024

The information included herein was obtained from sources which we believe reliable.

Allegheny Financial Group is a Registered Investment Advisor. Securities are offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.