When Should You Take Over Your Parents’ Finances?

We all get older, and as we age, we often need added support, be it a cane, an extra hand around the house or a second pair of eyes to glance through important paperwork. As our parents age, the importance—and necessity—of adult children stepping in to help them manage their finances can quickly become a reality. 

While the degree of help will vary, it's rarely as simple as making sure a bill is paid.

Signs That Your Parents Might Need Help
If your parent or parents have a broken arm, it’s an obvious health issue, but not one that would require any more from an adult child than clicking on "Pay My Bill" or putting a stamp on a return envelope in their stead. Noticing the subtler symptoms of more enduring illnesses requires more vigilance. It happens; more than 6 million Americans have dementia, and one in three seniors will die while suffering from it.

The stakes are high. With dementia or not, parents become more susceptible to financial fraud while they age if only because they have moved into the prime demographic target group for it. Find out the latest scams and occasionally let your parents know what dangers are lurking out there. It can just be a passing comment or a sit-down discussion.

How will you know when it’s time to intervene on a broader, more consistent basis? Look for a change in parental spending patterns, whether they’re spending a lot more, a lot less or on items that they have never spent money on before and that don’t seem to be a lifestyle fit. Maybe the bills are piling up unopened (on the kitchen table or in their email inbox). Are they getting calls from creditors and other bill collectors? 

If a parent says they are having a hard time keeping up and what was normal a few years ago is now overwhelming to them, it’s probably time for you, a sibling or a trusted professional to step in.

How to Offer Parents Help
For a topic that seems so rational, few things are actually as emotional as money. Parents may know intellectually that at some point, it will be time to let go and turn the management of their finances over to the next generation. But that doesn't mean they will do so particularly willingly, especially if they are already facing some kind of cognitive decline.

Keeping this in mind, it’s vital to “read the room” before approaching a parent, who may protect their financial independence with the same verve they protected you as a child from physical harm. Start small and quietly with brief, casual conversations with no distractions. Never forget it’s their money—let them know up front that you are acutely aware of this—and that you want to honor their wishes. If you have concerns that are personal to you, this is the time to bring them up.

Don’t wing these discussions; make a list ahead of time of all the financial- and estate-management topics at play: When should you receive power of attorney? Have they completed a healthcare proxy? Is their will up to date? Are there any other estate documents you should know about, such as a living trust?

This is also the time to make yourself aware—on an item-by-item basis—of your parents’ bills, mortgages and insurance policies, especially anything that will pay for long-term care. And ask your parents to ask their creditors to send you their statements on a regular basis, just in case something might be amiss.

How to Manage Their Money
If you’re stepping in to manage your parents’ financial life full bore, you will need names and numbers for all their various accounts. You are looking for established patterns you can easily continue—or adjust if necessary.

On the expense side:
●    Who do they owe, and when do their bills come in?
●    Are their bills paid online or through the mail, in whole each month or in part, from a checking account, a brokerage account, via credit card or just with plain old cash?

On the income side:
●    Where does their money live?
●    When during the month do their Social Security and other government benefit checks arrive, and in which bank account? 
●    Does either of your parents have a private pension?

Make sure you know about all their assets, including ones that might fall through the cracks during cognitive decline, such as the location of any safe deposit boxes (and their keys) as well as their contents. This might also include artwork, automobiles, second homes and the like.

You’ll also need the names and contact numbers of all the professionals in your parents’ financial life: investment advisors, tax planners and any lawyers. Apprise the team of your involvement—and why you are getting involved—early, and if this team doesn’t yet exist, consider creating one. On the tax front, have a handle on any annual required minimum distributions from retirement accounts.

When you actually start paying your parents’ bills, don’t make it more complicated than it needs to be. Set up automatic transfers as well as a joint bank account with them.

Managing Family Expectations
No matter how well you manage your parents’ finances, problems can crop up with other members of your family who might have different expectations. An ounce of prevention being worth a pound of cure, it's best to get ahead of these family fires with clear, transparent communications.

Siblings and other interested parties should be regularly kept in the loop and could be drafted into fulfilling some responsibilities as well. All money going in and going out should be documented. Don’t even open a safe deposit box without a witness.

Within families, the stickiest aspect of managing a parent’s finances can be, well, money. A legal agreement on compensation may be best for all concerned, however formal it may appear at first. These contracts go by various names, but one would usually be referred to as a "personal care agreement." Such arrangements not only honor the effort involved in managing an aging parent’s finances but also the disruption to the life of the financial caregiver.

Andy Sobel is a freelance writer and editor. He has held senior editing positions in The Wall Street Journal’s New York and Brussels newsrooms and was managing editor of American Banker. A graduate of the University of Missouri and Union College, he now lives in Nashville, TN.

Illustration by Sam Island.

We know that talking to your parents—or anyone—about money comes with challenges. Read to gather more tips to help you speak to your parents about financial matters and planning. Helping them get their finances in order adds a layer of confidence and security for your entire family.