At what point should you get involved in your parent’s finances? Unfortunately, this is often thought of too late, and the consequences can be dire. We have all heard stories about elderly people getting scammed by contractors or imposters, or losing their savings through bad “investments”. You don’t want to be intrusive; but you want to make sure your parent or parents are secure and properly managing their finances.
My father was an intelligent, detail-oriented person. When he passed away at 81 years old, we found that he kept a daily journal with details on everything he purchased – be it a pack of gum or an automobile. Fortunately, his financial records were just as detailed and we were able to easily identify all of the assets, change them over to my mother’s name, and manage them for my mother.
Conversely, the situation is quite different for my friend’s mother. Like my father, she was intelligent and financially-savvy. However, ten years after the passing of her husband, assets were still in both their names. Mandatory distributions on IRAs were not taken and penalties were assessed. Life insurance policies and assets were not addressed and became unrecoverable. A “financial expert” had convinced her to put all of her savings into an annuity, leaving her no access to her money for ten years without significant penalty.
Another friend is dealing with a very difficult situation with her father. When he retired, his pension and social security would provide enough income to keep him financially stable for the duration of his life. In order to keep busy, he started up a small mail-order business selling remote control cars, boats and everything associated. He was happy and all seemed to be going well. However, years later, when he became ill and needed long term care, my friend discovered that his finances were a disaster. He had remortgaged his house, leaving him no equity. His mail-order business was in the red and he had a large inventory of unsaleable merchandise. He ran up significant credit card debt, and depleted his savings and retirement accounts. When she finally pieced everything together, she realized that after he paid all of his monthly bills, he had nothing left over from his pension and social security.
Sometimes, people can be wise about their investments, but get scammed by people specifically targeting the elderly. For example, my friend’s mother signed a contract with a contractor she met at a Senior Fair to replace her windows and doors at more than double the normal cost. When she showed my friend the contract, he immediately engaged an attorney to send notification cancelling the contract. Rather than lose the business opportunity, the contractor significantly reduced the cost of the work, drew up a new contract, and the windows and doors were replaced at a more reasonable cost.
Just because your parent was financially-savvy or detail-oriented does not guarantee that their finances are being managed properly. So, how can you get involved without offending them? One way is to purchase a book or download a form that guides you through the process of documenting assets and liabilities. This method of gathering information seems less intrusive, since you are filling in a form rather than asking the personal questions yourself. Explain to your parent the necessity of documenting this information in case of emergency, theft, or other loss. Store the information in a place that is secure, but accessible if needed. If your parent is having a difficult time gathering the information, or is missing information and can’t find it, it may be an indication that they are having difficulties managing their finances.
The best way to avoid bad surprises is to get involved early and stay involved. After you have helped compile their records, sit down with them annually to update the information. This will indicate if there is a significant change to their financial situation. Talk to them about avoiding people offering “free” financial consulting services, selling annuity plans or insurance policies or offering investment opportunities. Discuss scams like the phone calls from the “electric company” threatening to shut off service, or the “IRS debt collection” scam, so they understand that these are not legitimate bill collectors. Tell your parent that before they sign any contracts or engage contractors in work, to discuss it with you or a sibling first. The contractor may be legitimate, but it is always better to be safe than sorry.
Bio: Diane retired at end of 2015 and moved to coastal New Jersey, where she is enjoying retirement by relaxing and finally having a chance to do the things she didn’t have time to do before retirement.