Whatever the scenario, heres what you might do when a parents financial behavior becomes problematic.
Here are a few common scenarios, and what options are available.
Your Parents Have No Nest Egg
Far too many people donthave enough saved for retirement.
Ideally, you want to encourage them to save.
But theres only so much you’re free to doultimately, its their responsibility.
Ask them about their future: What are their plans?
What kind of lifestyle are they hoping for?
This can lead to a discussion about how, practically, theyll be able to live that lifestyle.
Recommending a specific advisor can help, too.
Get others involved:You probably want to call a meeting with siblings, Care.com reports.
This way, everyone is on the same page.
It might help totalk to a third-party financial advisor, too.
Get wills and trusts in order: confirm these exist and are up-to-date.
Consider enlisting the help of a lawyer.
You may also want to pick a power of attorney.
Credit.com suggests checking to see if their life insurance policy is bigger than necessary.
Check out their portfolio: Are theyinvested appropriatelyfor their age?
It might be time to rebalance.
Your parents might not be ready for you tocompletelytake over their finances.
In that case, just suggest this as a plan of action.
But maybe youre past the point of encouraging them to save.
Maybe youre supporting them in some way already, or planning to support them in the future.
In that case, you should know how to protect your own finances.
As of 2015, you might give up to $14,000 without having toworry about the federal gift tax.
Anything more than that, and youll have to report it.
Or maybe you want to buy them a house.
If you dont charge minimal rent, the IRS might consider that house a gift,Kiplinger explains.
There are obviously some guidelines youll have to meet.
Their gross income cant be more than $3,950, either.
The IRS has moredetail here.
To protect your own finances, dont be so quick to co-sign anything or sign on as a guarantor.
Lend Money Carefully
When a loved one needs financial help, its hard to let them down.
But sometimes, you have to say no.
One financial writerexplains how she let her dad down gently:
I was upset being asked again.
I was upset that he bought something under the assumption I would give him money to cover it.
I was frustrated that this was happening again.
He said some hurtful things.
Threw a tantrum and was mad.
Then he got over it.
And I felt a lot better.
Of course, the other option is saying yes.
Dont expect it back.
Set up an agreement: When will they repay you?
Come up with a schedule, and keep track of any payments they make.
You may want to prepare yourself to help with these expenses.
Ask siblings for help: You may not be able to afford financial responsibility of your parents.
It may come at the price of your own needs.
Depending on your situation, consider asking siblings or other loved ones for assistance.
Lending money to your parents is one thing.
But what if they take you down along with them?
Unfortunately, it happens, and its calledchild identity theft.
The parent or relative struggles financially, then suddenly appears to have money.
The parent already has a history of misusing others identities.
The parent and child live apart, yet the childs name appears on the parents caller ID system.
Its a reasonable expectation, but you wont be able to do it withoutcontacting the authorities, Credit.com explains.
The ITRC has achecklist for getting startedwhen dealing with financial fraud.
Unfortunately, yep, it involves filing a police report, which means identifying your parent as the fraud.
You should also put a fraud alert on your credit report.
Weve written about what to do inmore detail here.
Of course, there are consequences for the parent.
They explain the consequences in more detailhere.
Settle Things Outside of the System
Your other option is to work things out with your parent.
Ask if you’re able to work out a repayment plan.
You may be able to convince them to lower your interest rate.
double-check the accounts are closed if they arent already.
Rebuild your credit: This might mean opening a card yourself and making small payments in full each month.
We have more detail onhow to improve your credit, too.
Of course, you should also take measures to protect yourself after this happens.
Youll want to check your report annually to verify any new debts actually belong to you.
This option requires trusting your parent to repay these debts and, of course, tonotkeep destroying your credit.
But when they pass, their debt can affect you, especially if you inherit their estate.
Here are a few types of debt a parent may have and how it can impact you later on.
Medical debt: Lets say your parent had unpaid hospital or doctor bills.
Their estate is responsible for paying these bills, if the moneys there.
If you cant afford this, you have a few options.
But it helps to know your options and what to expect.
Consider a reverse mortgage if your parent is a homeowner with no mortgage debt.
Consider writing a letter to the creditor explaining that there are no assets and requesting debt forgiveness.
If you co-signed a loan, of course, the debt is yours if it goes unpaid.
Money can be a touchy topic with anyone.
But your parents may be especially resistant to opening up about it.
If their habits are affecting your own financial life, its probably time to get involved.
And if the situation is beyond your help, you may want to call on a professional.
Either way, tread the conversation carefully, know what to expect, and take measures to protect yourself.
Illustration by Sam Woolley.
