Money can be a major stressor for families. Each stage of life brings new financial challenges and hurdles to overcome. This can include managing finances for aging parents and making major life decisions, such as estate planning, living arrangements, and more. But the good news is that you're not alone.
There are distinct steps and processes you can follow to manage your parents' finances with confidence and peace of mind. In this blog, we'll cover everything you need to know, from starting the money conversation with your parents to finalizing their estate plan.
Let's face it—talking with your parents about their money may seem awkward. They are your parents after all, and to this point, you may not have needed to give a second thought to how they manage their finances. But the truth is, if you feel something is off or that they may need an extra hand, you're probably right in thinking so.
It may be time to talk with your parents about their money if you're noticing consistent patterns like:
Once you've identified these hiccups, find a convenient time to sit down with your parents that works well for all of you. Approach the conversation from a place of love and concern, rather than one of anxiety or fear. Remind your parents that you're here to support them and help find solutions that work for all of you.
During the conversation, you'll want to get a better look at your parents' overall financial standing. Make a list of all their financial accounts, including:
Additionally, note any income sources your parents may have, which could include funds from:
From here, review any debts or lines of credit that your parents may have open. Review how they pay these debts each month and make a note of the outstanding balances. See if they need any assistance with linking accounts and identify if they experience any routine challenges with their day-to-day finances.
When you sit down with your parents, you want to be sure the conversation extends beyond their finances and bills, You will also want to review their current wishes and estate plan. Make sure your parents have the following documents drafted:
Additionally, see if your parents have written a trust or would like to create one. A trust allows probate to be skipped, which is the legal process of verifying a deceased person's will and managing their estate. It's also a good idea to review beneficiary information. A beneficiary is someone who will ultimately receive assets following an individual's death.
If your parents don't have all these documents drafted up, it's not too late to have them created. You and your parents can work with an attorney to create a living will, power of attorney, and more. Keep these documents in a safe place, and be sure to revisit them at least once a year to make updates as needed.
If your parents are American Heritage members, they can take advantage of our Digital Estate Kit service with One Digital Trust. With this discounted service, they can create these essential documents ( a last will & testament, trust, etc.) and pay an annual subscription fee to revisit them each year. You can learn more about this crucial service here.
Once you've established your parents' financial standing, you will want to create a caregiving budget. This framework will set in place your parents' monthly financial obligations and allow you to plan ahead and save for additional care or expenses that may factor in later down the line.
Compare your parents' sources of monthly income against their monthly expenses. Be sure to account for variable expenses that may change month to month, such as groceries, travel, or entertainment. This should provide you with a general idea of how much money they have to work with each month.
If their finances allow for it, consider dedicating a portion of their monthly income towards savings (if this isn't already set up). You may decide that your parents will need more care down the line, and these funds can serve as a nest egg for that eventual care.
It's crucial to take stock of your parents' whole situation at this time as well. Is maintaining a home becoming too much for them? Are you concerned about their safety in the home? Or are you nervous that more care may be needed? If that's the case, you should talk with your parents about home care or alternative living arrangements.
If you think the assistance your parents will need goes beyond some financial guidance and oversight, you'll want to weigh all the options. Some of these may include:
Of course, a major factor in deciding upon what would be best for your parents depends upon their insurance coverage. Resources such as Medicare often pay for some home care and other services. However, Medicare won't pay for longer-term care, such as independent or assisted living. This is where savings can prove to be crucial.
As you work with your parents to navigate their finances, American Heritage is here for this stage of your financial journeys. You may want to consider working with American Heritage's Investment & Retirement Center (IRC)1. Representatives from our IRC1 can help define your parents' accounts and ensure appropriate strategies are in place.
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