Know Your Parents Financial Situation Before it’s too Late

Know your Parents Financial Situation

Do you know your parents financial situation? If a medical emergency or old age incapacitates one or both of your parents do you have enough knowledge to know what to do with their bills? What about their retirement accounts? Do they have an IRA or 401K?  If you do not know any of this information I would suggest finding this information out. The earlier you can prepare for any situation like this the better. Don't wait until they are old to find out their financial situation because an emergency may arise before they grow old. Regardless if an emergency arrises or not knowing the financial situation of your parents can save a lot of headaches that can come up when you actually need to know the information.

Learn by Examples

There are plenty of people who end up not knowing their parents financial situation and because of that have to go through headaches and problems that could have been avoided. Let me give you an example that hopefully will push you into action.  Jessica and her siblings tried on multiple occasions to have the financial talk with their mother, but the conversation was always steered quickly into a new direction by their mother.  One day their mother died unexpectedly due to a fall. Because they had never had the important talk with their mother they had never known of some of the issues she was going through financialy. It was then that they realized that their mother had a mortgage and sadly it was already in default.

Talking to the bank didn't help at all. The bank told them they couldn't divulge any private info without a death certificate. Sounds easy enough, just provide the death certificate. Not so easy because the death certificate was pending because the reason for death wasn't exactly known. Jessica and her siblings didn't know how much money was owed, or if there was any catching up that needed to be done on missed payments.

Yikes, what a sad and frustrating situation to be caught up in! Luckily they were able to figure out how much was owed and straighten things out but that wasn't until roughly two months after their mother had passed away. That wasn't the only issue they found themselves in either. At first when their mother had passed away finding all the important financial papers, will and any other important docs seemed easy but they couldn't find all the docs they were looking for. They finally found what they were looking for in a very unexpected place, their mother's knitting bag.

Learning from examples is a great way to learn. I'd love to say that learning from examples means learning what to do but at times it means learning what not to do and how to avoid certain situations. What can we learn from this specific situation?

The Information You Actually Need

Before you actually talk to your parents about their financial situation it is very wise to figure out what information you actually need. You may be surprised about what you already know and what you don't know. Here is some information that is good to make sure you know:

  • Financial Records- Get all the financial records that you can. Account statements, tax returns and any financial records like property ownership info.
  • Monthly Finances- What are your parents' monthly expenses and income? You may find they have more going out than coming in and that their savings isn't enough to cover things. Get all the files you can for banking and brokerage accounts and any other sources of revenue. You may find that you need their social security information to access this data..
  • Healthcare Issues- Do you know what health insurance they have and what it covers? If not, figure it out. Are there advanced health care directives in place? Do they have life insurance? Getting the contact info for their doctors and preferred hospitals can help as well.
  • Legal Issues- Do you parents have an estate plan? If so, find out where it is and who is managing it, typically an attorney. Find out where this material is stored and make sure you can access it if ever needed.

The Talk

It can be quite tricky figuring out how to bring up the topic of finances. Traditionally there are certain topics you just don't talk about. Finances is one of them. It is difficult to talk about. You know your parents and may know what works with them better than others do. You may want to bring trusted people to the conversation. They could be professionals or family. Do what you think will work with your situation. One great tip is to use "I" statements. Say, "I am concerned and want to do the right thing when you pas," not, "You are very unorganized and are going to make this difficult for me. The more you put the focus on you instead of them the less they will feel attacked.

Self Directed IRAs

Do your parents have a self directed IRA? If so, it is a great idea to make sure you know the laws associated to inheriting an IRA. Typically non-spousal IRA heirs must withdraw a minimum amount each year. This doesn't matter if it is a traditional or Roth IRA. Have a tax accountant help you figure out how much needs to be distributed each year. To quickly explain how it is done, you take the balance on Dec. 31 of hte previous year and divide it by the inheritor's life expectancy (the IRS comes up with the life expectancy).  Depending on what type of IRA you have you may be required to pay tax on these distributions.

We have only scratched the surface with this topic. If you are wanting to know more information about inherited self directed IRAs or more about making sure you know enough about your parents' financial situation contact your tax attorney. If you would like general information