How To Care For Your Parents Money While Caring For Your Parents Audio

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HOW TO CARE FOR YOUR PARENTS’ MONEY WHILE CARING FOR YOUR PARENTS

Helpful Resource:

Helpful Resource HOW TO CARE FOR YOUR PARENTS’ MONEY WHILE CARING FOR YOUR PARENTS By Sharon Burns, PhD, CPA Raymond Forgue , PhD

The Growing Need for Action:

The Growing Need for Action 90% of respondents in national AARP poll stated, “Grown people have a moral responsibility to take care of their parents.” The fastest growing segment of the American population is over the age of 70. Over 22 million households in America provide care to an aging parent or sibling.

Emotional Aspects:

Emotional Aspects Some common stressors that many people experience when they begin to manage their parent’s finances include: Emotional Aspects for Parents and Children Early in life, children strive to obtain independence from parents. Later in life, the roles can be reversed. Many people are very private when it comes to their finances. This can lead to difficult and uncomfortable conversations. Potential Conflict Potential Conflict over how money is handled, both with parents and siblings. It is sometimes difficult to share responsibility among multiple siblings. Some parents fail to recognize that they need financial assistance. Knowing What To Do Many people simply are unsure if they have enough financial knowledge to handle their parents’ finances.

Effectively Communicating with Your Parents:

Effectively Communicating with Your Parents Just as this will be a new undertaking for you, the situation is very new for your parents’ as well. Effectively communicating with your parents is often the most difficult hurdle one encounters when beginning to manage their parents’ money. Understanding a few key principles will ease this process. Personal Boundaries Caretaking goes against your parent’s natural desire for independence and control. They may have issues sharing information or relinquishing their privacy. This can most effectively be combated by: -Be compassionate, empathetic and understanding. -Learn to manage financial discussions. Don’t just bring something up out of the blue. -Avoid telling your parents what to do. -Avoid “You” statements.

Effectively Communicating with Your Parents:

Effectively Communicating with Your Parents Desire for Consistency and Continuity As your parents age, it becomes less likely that their patterns and environments continue to stay the same. At the same time, your life and the lives of your immediate and extending family will also be experiencing changes. Some helpful tips to keep in mind: - Everyone has “their system” for paying bills and budgeting their money. Yours may be very different than that of your parents. Try to find a happy medium so that everyone can be comfortable with the new system. - Your parents may have different attitudes towards money than you do. Some changes, such as hiring additional assistance for housework or extra medical care, may be met with resistance because of these different values. Discuss necessary changes openly with your parents, and focus on commonalities to try to reach a consensus whenever possible.

Determining Who Should Help:

Determining Who Should Help In some situations, you may be the only one who is available and able to help your parents with their finances. In many cases, your own siblings, your parents’ siblings, and other family members may also be able to provide assistance. FOUR QUESTIONS TO HELP GUIDE SELECTING “WHO” SHOULD PROVIDE ASSISTANCE How close to your parents does each person live, and how often can they interact with your parents face-to-face? It is important to maintain consistent and regular contact. 2. How much knowledge about managing personal finances does each person have? Someone who is not skilled with handling their own finances will have a hard time providing helpful assistance. Who is willing to accept the responsibility? This process can be time consuming and stressful. It is important to determine whom, among the available people, is most appropriate to undertake this responsibility. Who will your parents trust? Trust is very important when one is giving up control of his or her finances.

Interacting with Siblings:

Interacting with Siblings While one sibling will often take the lead role when it comes to managing your parents’ money, ideally all will be involved in the process. It is recommended for the family to meet as a group, discuss the situation they are facing, and develop a plan together as to how to address the issues at hand. Even if one person has the “lead” role, everyone can have a role in assisting your parents. Responsibilities may be assigned based on available time, proximity to your parents, or a specific area of expertise. Each sibling may react differently, some positively and some negatively. For example, some may be very supportive and happy that the situation is being dealt with. Some may be envious or feel they are missing out on special treatment. Continuing to communicate effectively will often avoid misconceptions, “hurt feelings,” or anyone being out of the loop.

Helpful Tips as You Begin:

Helpful Tips as You Begin Keep in mind, handling your own finances is very similar to handling your parents’ finances. At the end of the day, money is made and money is spent, bills must be paid, taxes need to be calculated, and investments need to be managed. These are all things many people already do for themselves. Open and honest dialogue from you will help your parent to be more open and honest in return. Determine the appropriate level of assistance to provide based on the information you have. (Some situations will require more involvement than others.) Watch for early warning signs that assistance may be needed. Most of the time, parents do not feel comfortable asking their children for financial guidance. Some situations will require quick and immediate action, while others can be address gradually over time.

Knowing When to Step In:

Knowing When to Step In Warning Sign Suggested Response Severe and/or lengthy Illness Gather Bill Payment Records, account statements, and transaction registers. Consult any professionals who may be involved in your parents’ finances, such as a financial advisor or insurance agent. Review sources of income and retirement accounts and develop budget. Inquire about will and living will, as well as power of attorney. Death of First Parent Discuss with surviving parent their understanding of their financial situation. Ensure that all applicable policies and documents (will, power of attorney, insurance, and other contracts) are updated as necessary. New friends who appear to step out of normal bounds, attempt to gain access to parents’ accounts or information, turn parents’ against family or friends Discuss appropriate boundaries, obtain physical control of checkbook and charge cards if necessary. Contact law enforcement if warranted.

Knowing When to Step In:

Knowing When to Step In Warning Sign Suggested Response Late Fees, Outstanding Balances, and second notices on routine household bills Offer assistance and ask to see bills , set up bill-paying calendar Frequent complaints about not having enough money Keep track of day-to-day expenses, assist with building a budget Checking Account Problems (ex. Overdrawn accounts, excessive fees) Offer to reconcile accounts. Consider having child’s name added to account. Credit Card Problems (ex. Going over the limit, late payments, unrecognized charges.) Consolidate debt, monitor statements, challenge unrecognized charges, set up “pay off” plan. Large, Unplanned withdrawals from savings or investment accounts, gifts to unknown persons or charities Obtain transaction history to determine how long these practices have been going on, stop automatic payments, contact BBB and consumer protection agencies. ( http://www.ftc.gov )

Budgeting Your Parents’ Expenses: The Budgeting Process:

Budgeting Your Parents’ Expenses: The Budgeting Process Monitor, Review, Revise Set Goals Evaluate and Review Budget Implement Budget Decide Monetary Targets for Income and Expenses Establish a Budget Ledger Format

Budgeting Your Parents Expenses: Helpful Tips:

Budgeting Your Parents Expenses: Helpful Tips It is important whatever format you choose for your ledger is something that both you and your parents are comfortable with. (Ex. While an excel spreadsheet may be great for you, it may not be the best option for your parents.) If your parents prefer something that is hand written and you prefer something electronic (or vise versa), consider building your own budget and inputting their data into the format you desire. If your parents maintain a good ledger/check register already, use this as a tool to ensure the expenses you project in their budget are accurate. If they do not maintain these types of records, consider using bank statements to create one before building the budget. For most people of retirement age, a monthly budget is the most effective budget to create because their income is typically received monthly.

Budgeting Your Parents’ Expenses: Effective Methods to Keep on Track:

Budgeting Your Parents’ Expenses: Effective Methods to Keep on Track The methods below can be helpful in tracking how money is spent to make sure it falls in line with the budget: The Checkbook Method Simply put, using checks instead of cash. Checks are easier to track than cash, as the person/business who is paid and often the purpose for the payment are recorded. In order to make this method work as effectively as possible, 100% of all checks should be deposited into the checking and expenses paid with a check whenever possible. Debit card and ATM Transactions should be immediately recorded in a check register. When cash is necessary, a check should be written to cash with the reason recorded in the check register. The Envelope Method Ideal for people who like to use cash, this method simply involves placing the allocated amount of money for each specific spending category into it’s own envelope. As expenses come out, they can be written on the envelope and the amount of cash necessary can be taken out.

Budgeting Your Parents’ Expenses: Effective Methods to Keep on Track:

Budgeting Your Parents’ Expenses: Effective Methods to Keep on Track The Notebook Method This method involves keeping a journal or notebook. Each category of your parents’ budget should have its own page, and the first item listed should be the amount budgeted for that category for the month. From there, each expense that occurs within that category should be logged, and the amount should be subtracted from the balance. SPENDING CATEGORY: EATING OUT AMOUNT BUDGETED: $200.00 AMOUNT CARRIED OVER FROM PREVIOUS MONTH: $0.00 Transaction Amount Remaining Balance Beginning Balance $200 10/1 /2011 - Dinner $25 $175 10/4/2011-Lunch $8 $167 10/7/2011 - Dinner $ 22 $145

How Much Access Do You Need?:

How Much Access Do You Need? As you begin to take a more “hands-on” approach with your parents finances, it may be necessary to expand the access you have to their financial records as well as your ability to act on their behalf. Depending on your specific needs and situation, a number of options are available to you. Becoming a Joint Owner of their Deposit Accounts – This will typically allow you equal access to “deposit” accounts, such as Savings Accounts, Checking Accounts, and Certificates of Deposit. You will often be able to process transactions, request information, or makes changes to the accounts freely. Power of Attorney – A power of attorney will allow you to act as your parent. You will have the benefits of being a joint owner with the added ability to sign on your parents’ behalf. Establishing a Trust – By moving your parents’ assets into a trust, you will have a documented path of how their money should be handled should something happen to them. In different situations, it may also provide tax benefits and will keep assets from going through the Probate Court system.

Managing your Parent’s Retirement Benefits:

Managing your Parent’s Retirement Benefits Often times, retirees receive money from more than one source. For example, one person could be collecting benefits from social security, their company pension, and an IRA or a retirement investment account such as a 401(k) or a 403(b). Utilize statements and other records to determine all sources of retirement income and savings. Retirement benefits like social security and company pensions typically involve monthly deposits to your parents’ accounts. Your parents may choose to withdrawal from retirement savings, such as an IRA, to supplement their income. Due to Federal Regulation, at the age of 70 ½, your parents will be required to begin withdrawals regardless of their need for income. Different retirement plans are taxed differently. In many cases, if taxes were saved on a tax-deferred basis, the taxes will typically be assess during the year of withdrawal. It is highly recommended that you consult a tax advisor for guidance regarding taxes on funds withdrawn from retirement accounts.

Managing your Parents’ Savings:

Managing your Parents’ Savings Although the bulk of your parents’ savings may be in retirement funds, they may have other savings accounts elsewhere, such as Certificates of Deposit. The following steps will help you effectively manage your parents’ other savings accounts. Know where they have money. Bank statements may be helpful, and if the savings is earning enough dividends to justify it, tax documents will usually provide good guidance as well. If it becomes difficult to manage multiple accounts, consider consulting the savings accounts when the funds are available for withdrawal without penalty. (Note – Depending on the type of savings account, this may not be immediate.) Know the terms of the savings accounts that your parents’ have, including the interest rate and, if applicable, the maturity date. This will help you ensure their money is working for them in the best way possible. Contact a financial advisor if more detailed investment help is needed.

Managing Your Parents’ Credit: Avoiding Common Pitfalls:

Managing Your Parents’ Credit: Avoiding Common Pitfalls Making only the Minimum Payment on Credit Cards Making only the minimum payment often extends the period of time it takes to repay debt. Because credit card use has only become prevalent among recent generations, your parents’ may not fully understand the cost of credit. Automatic Charges When signing up for a service that involves providing credit card information, companies often also enroll unwitting consumers in various other services, and begin charging the card automatically for these services.

Managing Your Parents’ Credit: Avoiding Common Pitfalls:

Managing Your Parents’ Credit: Avoiding Common Pitfalls Credit Card Insurance Some companies will sell insurance for lines of credit in the event that a fraudulent transaction is performed. However, in most cases, the credit card company offers all of the protection a consumer reasonably needs in the event their information falls into the wrong hands. Subprime Lending While subprime loans and credit cards are typically targeted to consumers with low credit scores, offers are also sent to customers who may underestimate their credit worthiness. Namely, the elderly. Predatory Lending For many of our parents’, the equity in their home is one of their major assets. Predatory lenders package loans using a home as collateral at seemingly low interest rates. Often times, loans like this are marketed to the elderly with the promise of reducing their monthly payments. What the borrower is not told is that the loans typically carry very high default rates, and one missed or late payment will trigger those rates. These loans also typically carry very high fees up front which are added to the balance of the loan.

Additional Resources:

Additional Resources http://www.aarp.org AARP.org has a wealth of information on managing finances and many other aspects of life for persons of retirement age. http://www.ftc.gov The Federal Trade Commission’s website will offer articles covering various topics, as well as being your primary resource for reporting identity theft. http://www.healthcare.gov HealthCare.gov provides valuable information and Medicaid resources for all 50 states. http://www.jfs.ohio.gov The Ohio Department of Job and Family Services offers helpful resources for financial assistance as well as medical benefits.

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Contact Information:

Contact Information Adam Kearns kearns@stecu.net

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