I'm the first in my family to receive a significant education and my income is an order of magnitude higher than anyone else's in my family. I am very grateful to my parents for all they have done for me. However, I worry about their lack of financial acumen and resources. What can I do to make sure they're taken care of?
Over the years I have received several requests for a post on this topic. I am afraid I will be writing almost entirely from a theoretical point of view. My wife and I are blessed in that both sets of parents are in a comfortable, if not excellent, financial position thanks to hard work, frugal living, pensions, and mostly good advice. Both of them have been told by their financial advisors to “fly first class, or your heirs will.” The situations of our grandparents, however, are more variable, ranging from one set who started an educational trust for their descendants to another who ended life qualifying for Medicaid long-term care assistance. In this post I will jot down some general thoughts on the topic, and then hope that commenters, especially those with personal experience, will fill in the gaps.
You (Probably) Don't Owe Your Parents Anything
The first point I want to make is that you probably don't have to do squat. It is unfair for a parent to bring a child into the world primarily to pay their bills and wipe their butt in their old age. This is all purely voluntary. If you love your parents and want to help them, then great. But most of the time they made their own bed through their own decisions, and now it is time to lie in it. You might make some improvements around the edges, but it's not your job to rescue them. Do you expect your kids to fund your retirement? Of course not. Psychologically healthy parents simply don't do that. It might be hard to watch your parents have a lifestyle that is much lower, socioeconomically speaking, than yours, but that's the way life is.
Technically, what I just wrote is only true in 21 states. In the other 29, children actually do have some legal obligation to their parents. These states include AK, AR, CA, CT, DE, GA, IN, IA, KY, LA, MD, MA, MS, MN, NV, NH, NJ, NC, ND, OH, OR, PA, RI, SD, TN, UT, VT, VA, and WV. However, it is unclear to me how a state would force a resident of another state to provide care for their parent. So if your mom is abusive and you want nothing to do with her, move out of state.
Many of these “laws” are so poorly worded that they don't mean much. For example, here is Utah's:
17-14-2. Order in which relatives are liable.
Children shall first be called upon to support their parents, if they are of sufficient ability; if there are none of sufficient ability, the parents of such poor person shall be next called upon; if there are neither parents nor children, the brothers and sisters shall next be called upon; and if there are neither brothers nor sisters, the grandchildren of such poor person shall next be called upon, and then the grandparents.
I have no idea what that means or how a court is going to use that to force me to do anything. There is no definition of “support” or “sufficient ability” or “poor.”
Rhode Island's law is a lot more interesting:
(a) Any person, above the age of eighteen (18) years, who unreasonably neglects or refuses to provide for the support and maintenance of his or her parent, whether father or mother, residing in this state, when his or her parent through misfortune, and without fault of his or her own, is destitute of means of sustenance and unable by reason of old age, infirmity, or illness to support and maintain himself or herself, shall be punished by a fine not exceeding two hundred dollars ($200), or by imprisonment for not more than one year, or by both a fine and imprisonment.
(b) No neglect or refusal shall be deemed unreasonable as to a child who, during his or her minority, was not reasonably supported by the parent, if the parent was charged with the duty to do so, nor as to any child who, being one of two (2) or more children, has made proper and reasonable contribution toward the support of his or her destitute parent.
The fact that it is $200 or a year in prison probably gives you some idea of how long this law has been on the books without being updated (and presumably, how frequently it is actually enforced.) At any rate, if you're considering NOT helping your parents out, you might want to check into your state's law, just in case. The best way to look up your state is to put “WSJ 29-states-that-could-make-adult-children-pay-for-moms-care/” into a search engine, then find the statute for your state in the article and put that into a search engine. Your state's law will probably pop right up.
Enlist Your Siblings' Help
Whatever you do, try to be united with your siblings, whether they are in a similar financial position or not. Spread the load in some reasonable and fair way, bearing in mind the load includes money, time, and emotional work.
You Don't Have to Worry About Ruining Your Parents in Their Old Age
We often have a hesitation to assist our children. We don't want to give them Economic Outpatient Care lest we steal away their motivation to make it on their own. Well, don't worry about that with your parents. Any motivation (and ability) they may have had to work hard, live frugally, and plan well is long gone if it has come to the point where you are feeling obligated to lend a hand. That's not going to change.
Priorities: Self, Children, then Parents
When it comes to your financial and savings priorities, it is often recommended that you save for your retirement before you save for your childrens' college educations, and I think that's right. I would put both of those before any obligation to fund your parents' lifestyles. But once you have those priorities met, and you still have the means and desire to assist your parents, then by all means do so. Certainly I think it's a higher priority for most people than expensive vacations, automobiles, or consumer items.
Help Parents Navigate Governmental and Non-Governmental Programs
One of the hardest things for the elderly, especially the less-educated elderly, is to navigate all the rules and bureaucracy associated with Medicare, Medicaid, housing assistance programs, food stamps, Social Security, disability insurance, health insurance etc. Your assistance in doing so can be invaluable, plus it doesn't cost you anything but time. Keep in mind that your parents have paid for many of these benefits with their taxes. If they qualify for them, there is nothing wrong with claiming them even if they have a high-income urologist daughter. You can even pay for a consultation with an attorney specializing in this sort of thing. I'm not saying that you should encourage fraud, but do make sure your parents get what they are entitled to. If your parents are immigrants, or in another country, they may not qualify for these US-based programs, but look into what they do qualify for and help them get through the process. It can take a ridiculous amount of effort, intelligence, and persistence to get many of these “entitlements,” for better or for worse.
Be Careful Not to Offend
Many parents may feel they're doing just fine and don't need your help. They certainly don't want cash from you. In those situations, it might be best if you tiptoe around the edges a bit. For example, you can gift them lawn care or housekeeping services for Christmas. Or you can include them (and pay for their airfare and room) on a family cruise. Or you can pay for a “one-time” car repair. There are lots of gift-giving occasions throughout the year. Take advantage. (Happy Valentine's Day Mom! Here's a $200 gift certificate to Safeway!)
Think Outside the Box
Many parents run into trouble and start having difficulty affording their house or their life insurance policy. They may go to a reverse mortgage agent or a life settlement broker and sell their assets off for dimes on the dollar, along with paying high-fees. You can turn their need into a solid investment, or if you're feeling particularly charitable, a decent investment or even a losing investment. Instead of them going to a reverse mortgage agent, why not strike a deal with them that you get the house in exchange for a pension. You can even have it drawn up legally. Same with the life insurance. Split it with your siblings if you want. Chances are good you can give your parents more money than they can get elsewhere AND you can get a solid return on your money, just by cutting out the expensive middlemen in the process. This works especially well if you're going to inherit the house or be the beneficiary of the life insurance anyway.
You might also consider purchasing a home with a “mother-in-law” apartment rather than simply paying your MIL's rent. It might be cheaper (and more compassionate) to have your parent move in with you and hire a full-time caregiver to assist than pay for a spot in an assisted living facility. Obviously, family dynamics and relationships are a huge factor when offering to help out in these ways, but don't be afraid to think outside the box. Nothing has to be permanent either. If you move them in and it just isn't working, then move on to another solution.
Meet Your Parent at their Level
Many financially successful people have parents who can't budget their way out of a paper bag but are otherwise in good health and wish to stay as independent as possible. You have to meet them at their level. You can arrange to have their Social Security deposited into a bank account you control (careful with elder abuse laws- keep good records) and can contribute money to yourself. Their rent, utilities, medications, and insurance premiums can be paid out of this account. You can arrange for a shopping service to show up every week with food on their doorstep. Then you can have “an allowance” transferred into an account they can access. If their level of financial sophistication is that of a 12 year old, treat them (financially) like a 12 year old. At least you know there will be a roof over their head, warm air in the house, food in the fridge, and a reasonable level of health care.
Help Them Before You Have To Help Them
An ounce of prevention is worth a pound of cure. When I was a resident, I started seriously learning about finances and investing. I quickly realized that my parents were paying far too much for terrible financial advice. At the time, my father was winding down his engineering career, had a pension and was building a significant nest egg. Unfortunately, that nest egg was not growing like it should have been, especially for the amount of risk being taken. Gently, but persistently, I motivated them to move from their 2% per year, underperforming, stock-picking asset manager to a 7 asset class Vanguard portfolio with an ER under 10 basis points. (Showing thrifty people their financial advisor is ripping them off is amazingly motivating, BTW.) They have been very happy with the results, especially since the change (from a 90/10 to a 50/50 portfolio) was made shortly before the 2008 financial debacle. It takes me less than an hour a year to rebalance their simple, but sophisticated portfolio and encourage them to spend more of it. The moral of the story is that if you can establish some trust with your parents and get them to let you into their financial lives sooner rather than later, the benefits are manyfold. They get more financial security and more money to spend in retirement. You can worry about them less, spend less on their care, and maybe even receive a larger inheritance!
How can you get them to trust you? I suggest you approach them in their 50s or 60s, at the time they are worrying about their parents' finances! They're amazingly open to it once they've seen the problems that can occur when senile grandma starts watching the home shopping network. Oh, and it helps to be trustworthy too. In general, however, the parents of physicians and other high-income professionals are aware you're not after their money and want only what is best for them.
What do you think? Are you assisting your parents? How? What are the pitfalls to avoid? Comment below!