What to Do If Your Parents Have Bad Money

You may think that your parents’ money is none of your business, but in fact, you may be hooked because of their bad habits. You may have to pay for their retirement at your own expense, or abandon travel goals to pay off their debt. Whatever the scenario, here’s what you can do when parenting’s financial behavior becomes problematic.

Here are some common scenarios and options available.

Your parents don’t have a nest egg

Too many people do not have enough savings to retire . And if your parents don’t have anything in the cellar, it can be scary for you, because you might have to support them. If you feel a responsibility to take care of them later, you probably want to say something as they approach retirement age .

Ideally, you should encourage them to save. But there is only so much you can do – ultimately it is their responsibility. Either way, you want to know exactly where they are with their finances, so it’s time to talk. Here’s how to break the ice:

• Reveal Your Own Finances : They’ll probably be more comfortable sharing details if you share yours.
• 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 they can practically lead such a lifestyle.
• Suggest an appointment with a counselor : Marketwatch suggests that counselors can help bridge the gap between parent and adult children, as well as help ask any awkward monetary questions. The recommendation of a specific advisor can also help.

Once you take action, your parents may admit that they need help managing their finances and ask you to take a look.

Help them manage their finances

If it’s time to help your parents take control of their money, here are a few tips to get you started:

• State it all : Start a conversation, and then analyze every aspect of their finances: debt, budget, help, savings.
• Involve Others: You will probably want to call a meeting with siblings, says Care.com. This way, everyone will be on the same page. It can also be helpful to talk to a third party financial advisor .
• Organize wills and trusts : make sure they exist and are up to date. Consider getting the help of a lawyer. You can also choose a power of attorney.
• See if they are overpaying: check their budget and see if there are any unnecessary expenses that they may not be aware of. Credit.com offers to check if their life insurance policy is larger than necessary.
• Check your portfolio: Are they properly invested for their age? It may be time to restore the balance.

Your parents may not be ready for you to take over their finances entirely . If so, just suggest it as an action plan.

But you may have already stopped encouraging them to save. Perhaps you already support them in some way or plan to support them in the future. In this case, you should know how to protect your own finances.

Know how taxes work

For example, suppose you want to fund their retirement directly by giving them money. As of 2015, you can donate up to $ 14,000 without worrying about federal gift tax . Anything more and you have to report it. Or maybe you want to buy them a house. Kiplinger explains that if you do not charge the minimum rent, the IRS may consider this home a gift.

If you care about your parents in some way, you can declare them as dependents, although the technical term is qualified relative . Obviously, there are some rules that you must follow. For example, you must cover at least 51% of their support costs, including living expenses, medical bills, and meals. Their gross income also cannot exceed $ 3,950. The IRS has more information here .

In general, if you are supporting your parents in any way, you should speak to a financial advisor to fully understand how this will affect your taxes.

Take your time to sign a joint signature

In most cases, you will not be hooked on your parent’s debt, unless you sign it up as a “responsible party” or “surety”. Caring.com explains how this can cause problems:

… if they have financial problems later, that guarantee could come back and haunt you. One of the most common – and intractable – of these situations is when parents move to a new home. Aged housing, nursing communities, and nursing homes often ask a family member to become a financially “responsible party” by ensuring that ongoing contributions are paid before allowing the family member to become a resident. If your parents run out of funds, you may not want to jeopardize their living conditions by refusing to pay. But if you do accept responsibility, it can be long and costly.

To protect your finances, take your time to sign something together or act as a surety.

You can simply talk to your parents about their finances and help them come up with a plan to get out of debt .

Lend money carefully

When a loved one needs financial help, it’s hard to let him down. And if that loved one is your parent, you may feel obligated to lend them money (after all, they raised you!). But sometimes you have to say no. One finance writer explains how she gently let her father down :

I was upset when asked again. I was upset that he bought something, assuming I would give him money to cover. I was disappointed that this is happening again. I thought about it for a long time and persistently … Plucking up courage, I told him on the phone: “I’m sorry, I love you, I don’t give you this money.” He said some offensive things. Threw a tantrum and went crazy. Then he overcame it. And I felt much better.

Of course, another option is to say yes. Here are some tips and factors to keep in mind if you are going to borrow parental money :

• Consider just giving them the money. Don’t wait it back. Again, if this is more than $ 14,000, you will have to list it as a tax gift.
• Conclude a contract: when will they return to you? Schedule and track all the payments they make.
• This can become an ongoing thing: if your parents are struggling, they may have trouble paying medical bills or other expenses as they age. You can prepare to help with these expenses.
• Seek help from brothers and sisters; you may not be able to take financial responsibility for your parents. This may be related to your own needs. Consider asking siblings or other loved ones for help, depending on your situation.

Lending money to parents is one thing. But as they get older or their financial situation gets more difficult, you may find it necessary to help them manage their finances in general.

Your parents stole your credit

It’s one thing when parental finances get out of hand and you feel responsible for helping. But what if they take you with them? Unfortunately, this happens and it is called identity theft of the child . The most common type of child identity theft occurs when a family member, often a parent, uses their child’s data to open accounts, apply for lines of credit or apply for benefits, explains the Identity Theft Resource Center .

This usually goes unnoticed for years and may not surface until you try to buy a house or apply for another loan, only to find that your credit has been messed up. Creditcards.com points out several warning signs:

• Credit card suggestions are in the child’s name or nickname, even if the child does not have a bank account.
• A parent or relative is financially distressed and then suddenly finds out that he has money.
• Parents already have a history of abuse of strangers.
• The parent and child live separately, but the child’s name appears in the parent’s caller ID system.

If you suspect this has happened to you, the first thing you need to do is confirm it. Get a copy of your credit report and go through it carefully to make sure there are debts that you didn’t take on. From there, you have two main options for how to deal with it: report it to the authorities, or solve the problem outside the system.

Report fraud to authorities

Let’s say your parent destroyed your credit and you don’t want to deal with debt or worry about having to rebuild your credit over the next few years. That’s a reasonable expectation, but you can’t do it without contacting the authorities , Credit.com explains. Eva Velazquez, president of the Identity Theft Resource Center, told the site:

Without (a) a police report, the company has no legal obligation to believe that fraud has occurred. The protections provided by the law, such as the Fair Credit Information Act, will not be triggered until a police report is filed. Organizations are not required to investigate your claims or drop a charge of wrongdoing unless you take steps to demonstrate your innocence.

ITRC has a checklist for getting started with financial fraud. Unfortunately, yes, this includes filing a police report, which means identifying your parent as a fraud. You will want to challenge the fraud allegations in your report, and the bureau will need a police report to do so.

You should also put a fraud warning on your credit report. We wrote in more detail about what to do here .

There are, of course, consequences for the parent. LegalMatch explains that they will be fined, face jail time, or have to fight both. They explain the consequences in more detail here .

Settlement of things outside the system

Another option is to discuss the situation with your parents. This means that you will have to sit down with them, discuss the problem, and agree on a payment. In addition, financial expert Erica Sandberg recommends a few more steps :

• Contact your credit card company: explain the problem. Ask if you can come up with a repayment plan. You may be able to convince them to lower your interest rate. Make sure the accounts are closed if they are not already closed.
• Add a statement to your credit reports : It offers to add a statement that your parent has used your identity and credit without your permission. It won’t help boost your score, but it can make a difference if someone checks your credit to approve something.
• Recover your credit : This could mean you open the card yourself and make small payments in full each month. We also have more information on how to improve your credit .

Of course, you also need to take steps to keep yourself safe after this happens. You will want to check your report annually to make sure that any new debt really belongs to you. This option requires your parent to pay off those debts and of course not ruin your credit.

You are hooked for their debts.

Again, if you don’t sign jointly, your parents’ debts are their own. But when they do, their debt can affect you, especially if you inherit their property. Here are some of the types of debt your parents may have and how they might affect you in the future.

• Credit Cards : Even if you’re not a co-owner, debt collectors may try to convince you that you owe your parents’ debts, CNN reports . But they can only call you asking for payment if you manage your parents’ finances.
• Medical debt . Let’s say your parent has unpaid hospital or doctor bills. Their property is responsible for paying these bills if there is money in there. But some states have a “filial responsibility statute ,” meaning adult children are required to pay parents’ unpaid medical debts when an inheritance cannot. But there are a number of rules that must be followed for that to happen, explains Nolo’s legal website , and often the law doesn’t apply.
• Mortgage : If you inherit your parents’ house but they still have a mortgage, you will have to make payments in the future. If you cannot afford it, you have several options. According to Interest.com, you can opt out of inheritance or choose to short sale or foreclosure.

Of course, in any of these scenarios, it’s best to consult with a professional because inheritance and inheritance laws can be complex. But it does help you know what you have and what to expect.

And if you just feel responsible for taking on their duty at any moment, AgingCare.com has a few tips :

• See if your benefits can be reduced to accommodate your parents’ low income.
• Consider a reverse mortgage if your parent is a homeowner without a mortgage.
• Consider writing a letter to the lender explaining that there are no assets and asking for “debt forgiveness.”

If you co-signed the loan, then of course the debt belongs to you if it is not paid off.

Money can be a sensitive topic for anyone. But your parents may be especially reluctant to talk about it. If their habits are affecting your financial life, it might be time to get involved.

And if the situation does not help you, you can turn to a professional. Either way, conduct the conversation carefully, know what to expect, and take steps to protect yourself.

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