Helping your (older) parents with their finances

Recognize the signs that help is needed and then be ready to step in.

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Tips and to-dos from money guru Jean Chatzky

According to the American Association of Retired Persons (AARP, Inc.), one of the first things impacted when cognitive functioning starts to decline is the ability to handle finances. At age 70, 10% of people start to lose some of their cognitive functioning abilities—and by age 80, half of all people have some cognitive impairment. That's why it's important to be aware of the fact that stepping in to help with the finances is something you need to be prepared to do. Here are the steps.

Lay the groundwork:

Stepping in to help with their finances may be uncomfortable for you… and your parents. So you will want your parents to give you a roadmap to follow down the road, just in case. That means not only sitting down and beginning an important (and probably ongoing) financial discussion with your parents—but also getting started on tactical tasks like knowing where the documents (brokerage and bank statements, wills, trusts, etc.) are kept, who the important people (financial advisor, lawyer, accountant) are, and making sure everything is as automated as much as possible for bill-paying and portfolio rebalancing (and that you can access accounts and passwords).

Recognize the signs:

So, how will you know if your parents are experiencing problems managing their money? According to the American Psychological Association, being able to manage your own finances means being able to identify coins, count money, conduct cash transactions, pay bills, and spot the risk of fraud or a scam. Signs of cognitive trouble may include piled up mail, unpaid bills, calls or notices from creditors, conversations that are repeated or forgotten, and a multitude of boxes (from over shopping).

Consider requesting durable power of attorney:

Once you've stepped in to help your parents, you may want to ask them to give you durable power of attorney (POA) so that if you need to, you can pay bills or make other financial decisions on their behalf. One important thing to keep in mind—in order for your parents to grant you POA, they must be cognatively capable. If you wait until your parent—or both parents—have significantly diminished abilities, they may not have the legal capacity to create a POA and/or the resulting POA could be open to legal challenge. In general, POA is cleaner than being added to parent's accounts. If your name is on the account, you may inherit what's in it, which may cause problems with siblings. It can also cause problems with creditors—if your name is on a debt, you become liable rather than your parent's estate. If you have both parents, make sure both are involved in these POA discussions. Another option to consider looking into is a revocable trust in which the child (you) can be named successor trustee. This would give you considerable authority to help when the time comes.

Review accounts:

Ask for your parents' permission to review their bank account and investment information, insurance policies, mortgages, and Social Security statements. POA may come in to play again here. If you want to establish access to online accounts on your parents' behalf so that you can directly review their information—you must have POA. If you're simply helping your parents establish access to online accounts and reviewing the information with them jointly—POA is not required. Offer to take over things that they're probably eager to get off their plates—like taxes. Make sure the appropriate beneficiaries are assigned to accounts where needed.

Check their credit report:

Older people are often easy targets for financial scams. One of the best ways to flag them is to look at a free copy of their credit report from annualcreditreport.com (again, you would need POA to order the report on behalf of the parent, but you don't need POA to simply review the report with them). If you see credit in their name that they didn't establish, it's a sign of fraud. The credit report is your roadmap to bills that haven't been paid in the past.

Eliminate temptation:

As a rule, encourage your parents to sign up for the do-not-call registry and direct marketing association's service to reduce junk mail at dmachoice.org—or do it for them. And tell them if they do get soliciting phone calls to say: "He [or she] is not home. Please take him [or her] off your list." (These are good things you can do for yourself, as well.) Robocalls—which these days target cellphones as well as landlines—are a growing issue. Make it a point to discuss scams with your parents on an ongoing basis so that their guard is always up.

If necessary, take over—or have someone else do it:

Have the mail forwarded or arrange to receive bills online, so they don't get missed. Have copies of bank and brokerage statements sent to you, as well. If your parents are overspending, switch from credit to debit cards with no overdraft protection so they can't spend money they don't have. If you can't take over, you can hire a daily money manager to do it for you. You can find one at the American Association of Daily Money Managers (AADMA.com) or ask your advisor or accountant for a recommendation.

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Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments.
Jean Chatzky is not employed by Fidelity but may receive compensation from Fidelity for her services.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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