If you are called upon to help one or both parents manage their finances, you want to do the right thing. Your parents took care of you, and you want to do a good job for them. You also don’t want your siblings or other relatives to have concerns about the way you handled things. Here are five tips to help you get started:
The first step is to do a triage of your parents’ finances. Make a list that shows their sources of income (look for Social Security, pensions, and annuities); assets (bank accounts, investment accounts, real property); and insurance policies (making a note of which are term policies, and which have cash value). You will also need to review their expenses to make sure that their needs and obligations are being met. Be sure to look for unusual purchases as elders are often targeted by scammers.
You should also review their health insurance. Most retirees aren’t required to pay a premium for Medicare Part A, and Medicare Part B premiums are likely being deducted from their Social Security benefits. First, determine whether they have traditional Medicare or an Advantage plan. Next, evaluate their coverage and make sure it is appropriate for their needs. The Area Agency on Aging can help with this.
Avoid using joint accounts. It can be tempting to add your name to their accounts because it seems like an easy solution, but using joint accounts may subject your parents’ money to your creditors. Even if you don’t have any financial troubles right now, it is impossible to know what may happen in the future. Joint accounts may also cause family conflict or result in assets going directly to you instead of being distributed evenly through your parents’ estate.
Instead of joint accounts, use a power of attorney or, if your parents have one, a living trust to manage your parents’ accounts. If they don’t have a power of attorney, you may need a guardianship, but hopefully mom and dad have planned for this.
Don’t transfer their home outright to you or your siblings. Some people think of this as a good way to protect the home in case mom or dad eventually need nursing home care. An outright transfer of the home might instead prevent them from getting the care they need. Even if it doesn’t, it will likely have negative tax consequences for you and your siblings when the house eventually is sold.
If you have questions or would like additional information about planning options, call 251-431-6014 to reserve a seat at an upcoming seminar or receive a link to our webinar.