Helping Aging Parents with Money

Tips to help your aging parents with their finances, from estate planning to wills to investments

Disclaimer: The information provided is not intended as tax or legal advice. Individuals are encouraged to seek specific advice from their personal tax or legal counsel.

It can be difficult to figure out how to reciprocate and repay the people that have given you so much throughout your entire life. Yep, we’re talking about your parents.

Sure, they may have been the ones who taught you most of your financial habits. And, as our parents age, they may need your help to keep everything in order.

Maybe their mental or physical health is deteriorating, or you just think it’s time to incorporate their financial burden into your own plans. Whatever the reason, you’re helping your parents out with their finances, and we’re here to help make the transition as seamless as can be. And, in the meantime, you (and your parents!) will be able to sleep at night knowing your parents are financially well.

Helping your parents with estate planning

First off, we recommend you help your parents with their estate planning, if they haven’t already ticked that off the list.

Estate planning is making a plan for all of your assets—including everything from your jewelry to your pets—for the event of your death. Yes, it’s pretty morbid. But, it’s incredibly important to have these types of conversations early, so they’re not forced or overly emotional.

Since you’re helping your parents go through all of their assets and assigning a plan for them, it’s understandable that things can get rather tricky. If things get too confusing or difficult, remember that you can always hire an estate attorney. That way, you can ensure your parents are prepared and satisfied with their estate plans—and that everything makes good legal sense.

Have your parents assign a power of attorney

We recommend having your parents consider a power of attorney for both their finances and health.

A power of attorney helps to prevent a chaotic mess of arguments over who is to make the final call on your parent's financial or medical decisions. Even more than estate planning, we recommend having these conversations with your parents early. Especially when you’re making final calls on your parents’ medical decisions, you’ll want to have as much ironed out ahead of time to save yourself from unnecessary turmoil.

Help your parents with their will and living-will

You may be familiar with the term “living-will,” which is the same thing as an advanced healthcare directive. Other names for this are: personal directive, advance directive, medical directive, or advance decision.

That verbiage is just a list of fancy terms for a legal document that specifies how that person wants their medical decisions made if they’re not able to do so themselves. Take, for example, life support. This legal document helps the doctors determine if and when they should take the patient off of life support, pending things like if their condition is deemed incurable, or if they want to be kept on life-support for the hope of new treatment discoveries.

Is a trust right for your parents?

An estate attorney can help your parents determine if they should consider an individual, joint or other trusts. Trusts can offer some flexibility, as they grant tax benefits and avoid the probate process. Establishing a personal trust is an often overlooked, but very beneficial, way to help your parents allocate some of their money.

Reverse mortgages

In the process of helping your parents figure out their finances, you may find yourself in need of some liquidity. Or, in other terms, cash.

If you have a parent with limited cash flow, but significant equity in their home, a reverse mortgage may give them the liquidity—or, cold hard cash—they need.

If your parents have already paid off their house, but then realize they need more cash, they can ask the bank to finance a reverse mortgage. This process does exactly what it sounds like: create a new mortgage loan that’s backed by a residential property. And a reverse mortgage still allows your parents to live in their house.

When should your parents elect social security?

That’s the million-dollar question!

Depending on the year you were born, the earliest you (or your parents, for that matter) can start receiving social security is at age 62. But, not so fast. Unless your parents’ health is deteriorating rapidly, this may not be the best option for them. If they’re able to stick it out for a few more years, their annual income from social security will typically be higher.

Safe to say that delaying social security payouts typically result in more monthly benefits. So, if your parents can do without the money, we recommend they hold off on receiving their social security.

That reminds us...delaying distributions from retirement accounts such as 401k accounts and IRAs can also help maximize tax-free growth. If your parent can delay their social security payout until age 70, and can put off withdrawing from their retirement accounts, they may get higher monthly benefits and continuous growth. Now, that’s what we call a win-win!

Investment allocation decisions

For many, old age is synonymous with a conservative investment portfolio. Since stocks tend to out perform bonds over the long term, but are more volatile over the short term, you need to have a comfortable risk tolerance to maximize your returns.

Take it easy with yourself and your parents

Especially when it comes to wills and powers of attorney, no one likes imagining these scenarios. But, ensuring your parents are prepared puts your family in the best possible position where you can feel comfortable making choices you’re certain they’d support.

This process can be overwhelming—for you and your parents and family members—so make it as gradual as you all need it to be. Take it one step at a time and remember, you’re not alone. If you feel like it’s not a necessary transition in the given moment, start thinking about how you can prepare to make it smooth when the time comes.