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Ensuring Your Parents' Financial Independence
By Michelle Andrews
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THE BOTTOM LINE
Now you need to look at the details with an eye toward the big picture. This means asking yourself a lot of questions:
- Do your parents have enough to live on-for now and in the future?
- Is their money being managed well?
- If they have investments, are they getting the best return? Is it time to consider revising their investment strategy? (If so, you need to be prepared to make a compelling case to your parents for why they should.)
- Are their financial priorities in order?
- Are there health concerns that could affect their ability to manage money effectively?
As mentioned above, pay special attention to depression, substance abuse and dementia, all of which can profoundly affect your parents' spending habits.
GET HELP NOW
If your calculations tell you that your parents can't meet their bills—or won't be able to in the future—then you are in crisis mode. You need to take immediate steps to guarantee that they are taking full advantage of all the government programs that are available to them. In addition to Social Security, these can include Supplemental Security Income (SSI), food stamps and welfare, as well as any applicable state-run programs. To find out what your parents qualify for, contact the following:
- AARP's Public Benefits Outreach Program, designed to inform those with limited income and resources about what is available to them.
- The National Council on the Aging's online Benefits CheckUp, a confidential questionnaire that will calculate eligibility for federal and state programs and other benefits.
- You might also consider consulting a social worker or geriatric-care manager (see Caregiving Resource Guide) for advice, though the latter can be costly.
Something else to consider: About 70 percent of Americans 65 and older own a home, and 80 percent of those homes are owned mortgage-free. If this applies to your parents, that home is a critical asset when mapping out a financial plan. There are a couple of ways to use that asset:
If they are ready to move into something smaller, they can sell their home and, as a couple, exclude up to $500,000 in profit from capital-gains taxes.
If your parents are not prepared to sell, they might investigate securing a reverse mortgage. These loans are available only to those 62 and older. They allow homeowners to convert part of their equity into cash without having to sell their home, give up the title, or take on new monthly mortgage payments. Your parents can receive the cash as a lump sum, as monthly advances, or through a flexible and growing line of credit. The money, which can be used for anything, does not have to be repaid until the last surviving borrower dies, sells the home, or permanently moves away. At that time, all of the money, loan costs, and interest must be repaid. Find out much more about these loans—including less costly alternatives—at www.aarp.org/revmort.
If they do sell and wind up living with you, in essence as your dependents, check with an accountant to learn about tax breaks that may be available to you.
KEEP IT SIMPLE
Help your parents gain greater control over their money by consolidating all money matters and making transactions as easy as possible.
If there are accounts at multiple banks, combine them into one linked savings and checking account. Not only does this streamline bookkeeping, but it cuts down on the amount of traveling your parents must do to get to their money, which limits the likelihood of accidents.
Open a single insured account with a brokerage firm to handle all investment income. Coupon, dividend and interest payments can then be automatically deposited into this account and used to meet your parents' needs. For example, such income can, by prior arrangement, be forwarded to an interest-bearing checking account, or it can be consolidated and paid out in monthly, quarterly or semi-annual installments.
With this and all other accounts, have your parents designate you (or whoever is helping) as an authorized signer. This gives you the power to write checks or sell securities on your parents' behalf in an emergency, but doesn't carry the liability of joint ownership.
Similarly, make arrangements to have all income delivered by direct deposit. Social Security benefits, pension checks and dividend payments can all be handled this way. You can also arrange for most regular bills—mortgage payments, utility bills and insurance premiums included—to be paid automatically out of a single account. If you are concerned about your parents' ability to pay on time, arrange for third-party notification of overdue bills.
If, after you've done all this, it becomes clear that your parents will need more help managing their money, you can take on the task yourself or help them hire a professional to do it for them.
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