Assessing the Financial Assistance Your Parents Need
Before your parents retire or face serious financial difficulties, have an honest discussion with them about the challenges they are facing or expect to face and the type of assistance and support they need. You can help your parents either financially or through non-financial support like financial advice. The appropriate approach will depend on your parents’ current financial situation, where they want to be, and how you can help them bridge the gap. A financial advisor can help facilitate the conversation around these sensitive topics.
Helping Your Parents Financially Without Using Money
There are several ways to support your parents without opening your wallet:
- Helping them downsize their home.
- Assisting them in moving to another location.
- Asking them to move in with you.
- Creating a budget for them.
- Helping them with maintenance or repairs.
Helping Your Parents Financially Struggling with Money
If your parents have reached a point where non-financial support is no longer helpful, you may need to contribute real money to improve their financial situation. If you decide to do this, you must consider their needs alongside your own needs and financial constraints.
Creating a Budget
It is important to create a monthly spending plan for yourself to determine the amount you can reasonably allocate each month to your financially struggling parents while still covering your own expenses and contributions to retirement or long-term savings goals, such as your child’s education. Instead of adding a single expense labeled “your parents” to your budget, itemize the individual expenses you plan to cover for them, such as upcoming surgeries or potential medical emergencies, necessary medications, airfare to visit them, regular dinners with them, and shopping for them.
Setting Limits
By identifying the individual expenses in your budget, you will be better able to stick to your budget for your parents. However, you will also need to set a timeframe for how long the payments will continue (permanently or for a specified period of weeks, months, or years). You will also need to ensure that your parents spend the money wisely during that time. If they are unable to manage the money responsibly, make it clear that you will not be able to provide further assistance, or offer to pay their bills directly instead.
Allocating Money Now
You may be young now, but it is not too early to start saving, especially if your parents have no money for their current needs or an insecure financial future. This is an important step to take when helping parents who are facing financial difficulties because medical emergencies can arise suddenly and without warning. Having a designated amount set aside to help cover some of these costs can make the emergency less stressful.
Making a Long-Term Plan
Even if your parents are years away from retirement, it is wise to make a plan now for how you will help them financially in the future, so you don’t have to look for an agent to manage their money on their behalf or find the correct account information in case your parents suffer a serious illness like dementia.
Avoiding Risks Associated with Financially Supporting Your Parents
While you might want to do everything you can to help your parents succeed financially, there are some financial decisions regarding your parents that you should think twice about:
- Co-signing a loan with your parents: If you co-sign a mortgage or another type of loan on behalf of your parents, you become responsible for the debt just like they are. If they default on the loan, you will have to start repaying the debt, making it a risky endeavor.
- Adding your name to your parents’ property: If an aging parent adds your name as a co-owner of the current property they own, the share that transfers to you will be treated as a gift that must be reported, and if you sell the property later, you will be subject to taxes.
- Taking on debt for their expenses
You may become responsible for your parents’ medical bills: While some states impose what are known as “filial responsibility” laws that can require you to support your financially struggling parents, generally you are not responsible for your parents’ debts. However, when filling out admissions agreements at nursing homes and other healthcare facilities, you need to be careful not to sign as a guarantor, or the person financially responsible for the patient’s bill, if that is not your intention. Doing so may make you liable for your parents’ end-of-life care costs.
Conclusion
If your parents are facing financial difficulties, you can offer financial or non-financial support to improve their situation. Before you write them a check or offer them advice, assess their needs and your ability to meet them so you can arrive at an approach that works for everyone. This way, your parents can live comfortably while you don’t have to sacrifice the life you planned for yourself.
Frequently Asked Questions (FAQs)
Can I help my parents with Medicaid?
The spend-down period allows individuals with excess income to deduct the costs of medical copays and uncovered healthcare expenses from their income to reduce their remaining income to an acceptable range. Your parents may not have enough remaining income to meet all their living expenses if they do so, and if their expenses and private payment ratios are significantly high. You can help them by buying groceries or covering other expenses they cannot manage.
How many adult children support or help their parents financially?
AARP reported in 2020 that 32% of adults aged 40 to 64 provided financial assistance to their parents and that 42% of them expected to do so in the coming years.
Source: https://www.thebalancemoney.com/millennial-plan-to-help-parents-financially-4134994
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