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[VIDEO] Managing Your Parents’ Money

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Being asked to take care of your parents’ finances can be an intimidating situation for any adult child. In this video, I talk about the four things to consider if you ever find yourself in this situation:

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What If I Have to Manage My Parents’ Finances?

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A concern many of us have is, “What if I have to manage my parents’ finances?” As children and parents both get older, this scenario becomes more and more likely.

Here is an example:

When Bob passed away, Mary (who was 82 and definitely slowing down) was suddenly for the first time in her life, responsible for all things financial.  She was not only unprepared, but would clearly need significant help to fill the void left by Bob in this area. Mary turned to her 56 year old son Steven, who had maintained a careful distance from his Dad when it came to personal finances.  All of a sudden, Steven had to help his mother get a hold on a number of financial issues ranging from how to pay the bills, getting bank accounts changed to how should the investments be handled?

To get started, the most pressing issue was: “Where is the world were all the papers, accounts, files, contracts and passwords?”

Steven and Mary tried to connect the dots on various conversations, go through papers, make calls to an investment person, an insurance person, a banker, and an old friend that had convinced Dad to make a loan on some business.  What was nagging at Steven and Mary was the fact that they were sure they were missing some things, but couldn’t be certain.

The whole process was very stressful for Mary and Steven and one they had both secretly dreaded.

Managing-Parents-Money

This story raises a few issues that you and/or your parents need to consider

  • If something happens to my Dad, etc., how do we know where everything is, and who to call? To assist with this process, download a free copy of the “All in One Place- Financial Guide” and take a moment to fill it out with your parents. It allows easy track down of important documents, investments accounts, names of advisors, passwords etc.  This Guide can save immeasurable time, minimize stress and legal costs.
  • If something happens to my Dad, etc., is there a financial planner who is truly our ‘go to’ person, who we trust, and who has an overall picture of their financial world?
  • As we age, often our advisors (who we have known for years) are the same age as us.  Does it still make sense to have “Abe” as our parents’ financial advisor when he is also 70?
  • Somehow their financial lives got complicated along the way.  All of their good advice led to multiple accounts, a holding company, a trust, 2 properties.  Can it be simplified and co-ordinated?

If your parents are now 65 plus, it is a good time to have a discussion about their finances with them. It is always better to be prepared for the future, and have a comprehensive financial plan in order.

You might find this article about Tips for Managing your Parent’s Money helpful.

Tips to Manage your Parents’ Money

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For an adult child, being asked by your parents’ to manage their money can be a potential minefield. If  you have stayed out of your parents’ financial decisions until this point, it can be overwhelming to even know where to start. In addition, conflicts may arise with your siblings, other family members or parents themselves if others are not happy with your financial management style.

Whether it is for power of attorney situations or because your parents’ simply feel more confident having you take charge, tread carefully and keep in mind these four rules:

1) Understand the full financial picture.

Like any financial planner, you can’t do a good job managing someone’s investments unless you understand their situation, including how much risk they need to take, their annual expenses, income, assets and their personal risk tolerance. If you are not able to communicate or have access to the whole financial picture, then you simply can’t do a good job. Do not wait for an emergency or an illness to get yourself involved. Encourage them to explain to you their full financial picture now so you can be ready. Sit down with your parents and gather all important information (such as account numbers, passwords, company affiliations etc) in a document like the  Tridelta Financial Planning Questionnaire.

2) Don’t be afraid to use a professional.

Even if you manage your own money, you may want to work with a professional when handling your parents’ money.

There are three reasons for this:

  1. It takes some of the responsibility and burden off of you and your siblings might be more comfortable in this setting
  2. A good financial planner can often provide a wider range of insurance, investment, savings and tax options than you might be able to on your own
  3. A planner in emotionally removed from the money. Especially when managing your parents’ money, emotions can wreck havoc on investment decisions
Managing your Parents' Finances can be complicated

Photo: kenteegardin

3) Know how much capital is needed to support your parents.

If a parent might reasonably live to age 90, plan for age 95 and know the capital requirements. If their current amount won’t cover potential needs, you might be restricted in taking risks. However, if someone only requires $350,000 in income and has $1 million, it might be a mistake to be too conservative. Manage the necessary capital safely, but the other $650,00 should be managed based on a higher risk tolerance (for example, don’t make the mistake of an all-GIC portfolio).

4) Communicate with other family members.

In almost every case, there will be some criticism from other family members of how you are managing things. It is one of the reasons why it is sometimes better to hire a professional to take the heat. In any case, you can minimize criticism by communicating what you are doing, why you are doing it, and to get notional buy-in.

While it is a big responsibility to manage your parents’ money, remember these four tips and remember the ultimate reward of this: you parents’ and family’s appreciation.

 

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