How to Financially Help Your Parents without Putting Your Future in Jeopardy

Nick Spagnoletti, Jr., CFP®
person holding the arm of an elderly person

Hopefully you were lucky enough to have parents who helped guide you through your youth, adolescence, and into adulthood, while assuming the financial responsibilities that came with raising a child.

Now as your parents are getting older, the tables can turn and you may find yourself in a position where they need your financial assistance. Your instinct is probably to immediately write a check and do whatever you can to help your parents; but before you do, talk to your financial advisor and consider the following factors.

1. Assess the situation.
Before taking any actions on your parents’ financial behalf, do some investigating to understand the extent of the financial challenges. You need to identify what they need and why.

These financial conversations with your parents may be uncomfortable for all parties involved, and you may need to initiate the dialogue, as they’re likely to be reluctant to ask for help. Be gentle and patient, and appreciate how the role reversal could be embarrassing for the people who nurtured you your whole life.

2. Get to the source of the problem.
Take the time to dig deep and develop a clear understanding of what got your parents to this point.

  • With the U.S. population living longer, your parents may not have made adequate financial plans and are essentially out-living their savings.
  • In today’s turbulent economy, perhaps some or many of their investments floundered or turned upside down.
  • They may be reckless spenders and/or unaware that they are spending too much for goods and services that can be procured elsewhere at a lower cost/rate.
  • One or both of your parents may have ongoing medical issues, which in turn become financial issues if the conditions are chronic or severe.

3. If you have siblings, get them involved.
If, after uncovering the root of the problem, you recognize the need to put a plan in place, it is best for the entire family dynamic if you engage all of your brothers and sisters in the decision making.

Your parents may not want all of their children to know of their circumstances; maybe they’re trying to “protect” your siblings, or perhaps they are simply embarrassed. But it’s not fair for one person to make all of the decisions, nor should one person shoulder the entire burden.

To avoid creating disharmony among siblings, set some ground rules and stick to them:

  • Everyone should have an opinion, and everyone’s opinion should be heard. While you all may not be in complete agreement with every facet of the plan you devise, agree to “disagree and commit” so that you are a united front.
  • Assess what help each person can give. Chances are, not all of your siblings are in the same place financially, geographically, emotionally, or even rationally when it comes to their ability to help. Define roles and responsibilities and determine who can:
    • Give their time to be with your parents
    • Investigate and secure needed resources
    • Take care of paperwork, pay bills and perform other related tasks
    • Contribute financially
  • If finances are involved, put your plan in writing. Keep track of all expenses and expenditures related to your parents’ care. If all siblings are not contributing or contributing equally, agree in writing that individual contributions will be reimbursed by the estate before it is settled and the proceeds parsed out equally.

4. Devise short- and long-term plans as needed.
Don’t be surprised if your parents do not have a long-term financial plan in place. They may be the type to take things as they come and, as such, they became overwhelmed with their growing debt and expenses and/or the deterioration of their health.

You may be able to help them in the short term if:

  • Your parents are reckless spenders. You can look to correct and potentially reverse some of their bad financial decision making. Then you can suggest ways for them to cut back on unnecessary spending and/or put them on a budget.
  • Their medical condition is acute and can be treated, such as a knee or hip replacement. You can make plans for their rehabilitation and physical therapy, make any necessary home repairs such as installing handles in the bathroom or shower, and even secure a part-time caregiver.

However, if one or more parent has a long-term or chronic illness, the reality is their financial position will not get better and their expenses will only increase. You need to think long-term in terms of who will pay for their care and how.

If your parents are or may wind up living with you, one option is to make your parents your dependents. Talk to your financial advisor or tax professional to determine the eligibility requirements as well as the pros and cons of such a move.

5. Have your own house in order.
You may start out paying a bill or two, or driving a parent to a weekly appointment. Before long, you may find yourself cutting back on work hours, not using your expensive golf membership, and tripling the amount of finances you’re covering by taking money from your kids’ college or trust funds. Before your parents’ situation spills out of control for you and your family, make or revise your own plan.

Similar to the advice we provided parents in our previous article, How to Financially Help Your Adult Children without Putting Your Future in Jeopardy, we suggest you consider your own situation before taking on additional financial obligations:

  • How will this impact your own financial planning? Will helping your parents be a potential detour in your own retirement planning? Will it impact your short- and long-term financial goals and objectives?
  • What sacrifices will you need to make? If you are in a dual-income household, consider the ramifications if you need to sacrifice one income or cut back to help care for a parent. How will it impact the household?

6. Don’t put your name on their assets.
Be aware of the consequences before putting your name on your parents’ house or having them gift their house to you. In terms of tax ramifications, the house is gifted at the cost basis (the amount originally paid); however, if you were to turn around and sell the house, you would be paying capital gains on any profits.

Gifting the house may also encumber that asset for use by your parents, who would no longer be able to take out a reverse mortgage on the property, which may be a better means to pay down debt.

7. Where possible, be proactive vs. reactive. But either way, talk to a professional.
Taking on our parents’ financial obligations is not something most children plan for as adults. But it is a topic that you should discuss with your financial advisor the next time you meet – whether you need to create a plan for your parents’ current financial hardships or want to create a contingency plan for yourself should the situation arise in the future.

We often feel like we owe our parents so much for everything that they have done for us. But instead of leading with your heart when it comes to your parents’ and your own financial circumstances, it’s best to lead with your head.

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