How to Tell if It's Time to Take Over Your Parents' Finances

Many, if not all, early financial lessons come from our parents. They may teach us how to save by buying our first piggy bank. Or they give us an allowance and counsel us on how to use it wisely over the coming week or month.

But as parents age, their ability to manage their own finances may start to decline. It may then fall on you to use the lessons you learned from them and take over managing their finances. Here, though, are four questions to ask yourself before you decide to take over your parents’ financial affairs.

1. Do they actually need help?

Before jumping in to help your parents, first consider whether they need assistance in the first place. Often, they don't, at least not yet. (Indeed, many mom and dads serve as highly competent money managers for both themselves and other family members well into their senior years.)

While the best way to determine whether your parents need help is by asking them, that’s not a foolproof strategy. Sometimes, people in cognitive decline don’t recognize that fact, which means you should look for other clues, as well.

Try to review, preferably with your parents, how well they’re currently managing their finances, including keeping up with regular bills. If in doubt – and if you can – get their permission to check their credit records and review those for blemishes that may result from late payments.

Try, too, to look over their bank accounts with your parents. Older adults are often the target of online scams. Look for any irregular purchases or withdrawals. Any unexplained transactions or strange purchases might indicate that someone is taking advantage of your parents. You can have your parents add you as a trusted contact with their financial institutions. These institutions will contact you if they suspect your parents are being exploited.

2. How soon do they need help?

It’s better to have conversations with your parents about their finances sooner rather than later. If you wait until your parents start showing signs of cognitive decline, it may become more difficult for your parents to walk you through their finances and properly answer your questions.

Additionally, your parents must generally meet a threshold of mental acuity for certain legal matters. For example, they’ll need to be considered “mentally competent” to grant you power of attorney. Similarly, any changes regarding your parents’ wills must be made while they are of sound mind.

Even if your parents don’t need immediate help, you can start assuming some of their responsibilities and gradually increase your involvement over time. However, you’ll need to be prepared if something changes abruptly. For example, one of your parents may receive a medical diagnosis that will move your timeline up.

The state of your parents’ finances may also affect how soon they need assistance. For example, you may need to intervene sooner if your parents don’t have healthcare or long-term care plans.

3. Are you up to the job?

Even if your parents need assistance, consider whether you would be the best person to provide it. Determining that may involve a struggle with your emotions. Drawing your boundaries, both in terms of time and money, in helping your parents can be challenging.

However, try as best you can to assess your readiness to take over managing your parents finances by asking these key questions:

How complex are your parents’ finances?

Understanding the scope of your parents’ finances will give you an idea of the commitment you’re making when you agree to help them manage their money.

Look into their assets, like investments, bank accounts, retirement accounts like 401(k)’s and IRAs, pensions and insurance policies. Some types of life insurance policies, like variable universal life insurance, offer an investing component that requires active management, so it’s important to get a handle on these policies sooner rather than later.

Have your parents walk you through their monthly cash flow. Confirm which income sources they have. Social Security, pensions, annuities or 401(k) withdrawals are some of the most common.

You also need to get the full picture of your parents’ monthly expenses and financial obligations. Make sure their bills are being paid on time and plan ahead for unexpected expenses so your parents don’t run out of liquid cash.

Have you the time and expertise?

Having a better grasp of the scope and complexity of your parents’ finances will allow you to more objectively assess whether you're equipped to take them on.

If you’re struggling to manage your own finances or you’re not particularly financially savvy, becoming your parents’ financial manager may not be the best move for you or them.

Similarly, consider if your other obligations — work, family and other commitments — leave you spread too thin already to provide help to your parents. If that’s the case, entrust another family member to the task or seek the assistance of a professional.

4. Can anybody else step in?

Before you take sole responsibility for your parents’ finances, ask yourself if there are any other trusted loved ones who can help, like siblings or other family members.

Even if you have siblings who aren’t willing or capable of helping, it’s important to involve them in these conversations to prevent any misunderstandings or miscommunications.

You can also consider seeking professional help to help you make the best decisions for your parents. Your parents’ life insurance provider may offer benefits like complimentary estate planning, for example.

A financial planner, financial advisor or attorney can guide you through your parents’ affairs and help you make decisions on their behalf. An attorney can also help you through any issues that arise when assuming decision-making responsibilities. For example, if your parents are deemed unfit to grant you power of attorney, you’ll have to go to court to establish a guardianship or conservatorship.

Tips if you do take over

It can be difficult to think about the day when your parents, the people who most likely taught you the basics of saving and budgeting, lose the ability to manage their own finances. But it’s a reality that must be faced. Even if you decide that your parents don’t need help yet, it’s a good idea to have these conversations proactively while your parents are still in good health.

If you do decide to dive in, take care of yourself even as you assist your parents. It’s important to find your limits and stick to them, so you don’t find yourself sacrificing both your financial and overall well-being.

For starters, experts generally recommend keeping your finances separate from your parents’, even if it would be more convenient to merge them. That means refraining from opening a joint bank account.

Separate finances protect you from any outstanding debts and tax obligations that your parents may have. Conversely, keeping your finances separate will protect your parents from any financial issues you might be facing.