Waking up at middle age — or later — and realizing your finances are still a wreck is a scary scenario.
Almost as scary?
Having the same realization for your parents, who seem oblivious or apathetic, despite their advancing age.
Add in some revolving credit card debt, a mortgage that just won’t disappear and maybe a not-yet-paid-off vehicle or two, and you’re looking at a complete mess.
But you’re a Penny Hoarder, so you don’t have any of those issues.
Maybe you’re the first Penny Hoarder in the family; we are something of a rare breed.
But if mom and dad aren’t so lucky, you might need to know how to manage money for them, so their problems don’t become your problems.
Your Parents’ Finances Affect Your Finances
No one wants to think about the fact their parents are going to die. I get that.
But aside from preparing to emotionally deal with it, you need to be prepared for the logistical fallout, too.
It’s going to be hard enough to keep track of all the documents, passwords and IDs you’ll need to get mom and dad’s things in order — even if your parents’ finances are golden.
If they’re leaving a financial sinkhole behind, you’re going to be in even worse shape.
Your parents’ money decisions may have ramifications for you they don’t even know about. And if they’ve mentioned they’re planning to leave you an inheritance, the total might change drastically depending on their financial health.
Can You Inherit Your Parents’ Debt?
After grandma’s temper and dad’s bunions, the last thing you want to inherit is parental debt you had no part in creating.
Luckily, laws are in place to prevent that from happening… most of the time.
“The rules are complex and differ depending on the type of debt and where your parent lived,” CNNMoney‘s Jeanne Sahadi reports.
In general, creditors are required to go after your parents’ estate to collect outstanding debts post-mortem.
For us non-pre-law folks, someone’s estate basically amounts to their net worth: It’s the total of all their liquid funds and savings, investments and physical assets — minus the total of their debts, of course.
However, there are exceptions to this rule, including about 30 states which still have filial responsibility laws on the books.
And even if you’re not legally responsible, if any of your parents’ debts have gone unpaid for a long time, you might receive phone calls from collection agencies trying to convince you to empty your pockets.
In the wake of a family member’s death, your head is already going to be spinning.
The bottom line? You’re going to need to check with a lawyer.
Ideally, you’ll want to help your parents get their situation in order now, while they’re still alive.
Get Ahead of Your Parents’ Financial Problems: Help Them Out
While this is a huge and intricate topic and you’ll likely have to do more research depending on your individual situation, here’s a beginner’s guide for how to approach three common, but less-than-ideal, parental finance situations.
1. Your Parents Have Nothing Saved for Retirement
The scariest part of this scenario is it’s pretty darn likely.
A recent study showed almost half of American families have absolutely nothing saved for retirement — and those of us who do aren’t doing much better, with a median $5,000 saved.
Having no retirement savings is a huge financial no-no at any age… but it’s even worse if you’re over 30. Or 50.
That’s because as time passes, compound interest — which makes saving for retirement shockingly easy for 20-somethings — is less and less on your side.
To put it bluntly, you’ve got less time to make it work.
But you’ve gotta start somewhere.
If your parents are part of this unfortunate statistic, help them make a budget and calculate a savings plan.
You might want to look into ways to automate savings so mom and dad don’t feel the pinch quite as much — but it’s gonna be a bumpy ride, no matter how you slice it.
They’ll have to be pretty aggressive to accumulate any appreciable nest egg… but $50,000 or even $10,000 of savings is a heck of a lot better than $0.
A good place to start? Look for obvious, extraneous expenses to cut — like storage units full of stuff no one’s using.
2. Your Parents Have Credit Card Debt
You might already know, but you should hear it again: Credit card debt is the very worst kind you can have.
It’s more likely to have an interest rate in the teens or 20s than any other kind of debt, like a mortgage or student loans.
And since credit card companies often lure customers in with promotional low interest rates, it’s very easy to fall into the trap of revolving credit card debt. Why do you think the companies are so rich in the first place?
When you carry revolving credit card debt, you might pay almost double the price of everything you charge.
Don’t believe me?
Spend a few minutes playing with this debt repayment calculator — and tell me credit card debt doesn’t terrify you.
There is some good news here, though: Credit debt is one kind you absolutely can’t inherit, unless you’re a cosigner. Keep that in mind should a credit card company or collections agency try to convince you to pay up after someone’s death — they’re not above it.
But those outstanding debts could take a pretty hefty chunk out of your parents’ estate and mitigate any other efforts your folks are taking to get their money on the mend.
So tell mom and dad their balance has got to go. Now. Here are 11 ways to make it disappear post haste.
3. Your Parents’ Mortgage Isn’t Paid Off
Newsflash: The American housing situation ain’t what it used to be.
When your parents were growing up, they more than likely invested in a house in the name of the American dream, with the expectation they’d made a smart investment and would be able to pay it off on time.
These days, things are probably looking a bit backwards to baby boomers.
Young people are less likely to settle down and buy a house, while many older folks are still grappling with mortgages, likely due at least in part to the housing bubble of 2008 and its subsequent foreclosures.
When the fixed income of retirement proves to be more belt-tightening than they’d hoped, many seniors take out reverse mortgages to cover living expenses.
And since reverse mortgages don’t require a monthly payment, the interest is simply tacked on over time — creating a loan that can even surpass the value of the house itself.
In the case of a regular old mortgage, heirs may have several options, including taking over the loan at the same interest rate with the payment plan, refinancing or walking away from the property.
If there are enough funds in the estate to pay off the remainder of the mortgage, they might even inherit the property free and clear.
But a reverse mortgage is a different animal.
Payment is due at the occurrence of a “trigger event” such as sale of the home or — you guessed it — the debtor’s death.
If you’re the beneficiary, that means it’s in your hands.
And since the loan hasn’t benefitted from being paid down on a regular basis, it could be pretty hefty.
It’s important to note reverse mortgage creditors can’t come after your assets after your parents’ death in order to settle the loan. But you could still be losing a valuable asset — maybe even the place you thought you’d be calling home.
What should you do about it?
If your parents are still dealing with mortgage-related issues — or even worse, facing down foreclosure — you might want to gently suggest they consider downsizing.
Ideally, you could help your parents find a home they can afford free and clear… even if it means going back to renting, or moving in with you. (Hey, they changed your diapers.)
A good friend of ours has been able to buy his home in cash — three times! — to avoid the mortgage problem altogether.
And if a move is on the table, check out these cities that will pay you to move there. Free land or assistantship might help make the cost of housing itself more footable.
Need More Help?
You’re in the right place.
Your parents can find great tips and tricks to demystify personal finance and fatten their wallets here at TPH — we publish them every day.
But healthy spending habits are learned skills, and it’s going to take practice.
For your parents’ sake (and your own), use your hard-earned penny-hoarding prowess to help them get situated.
After all, they’re your parents. You owe them big-time.
Your Turn: What familial financial troubles are you dealing with? How do you help your family turn around their money problems?
Jamie Cattanach (@jamiecattanach) is a staff writer at The Penny Hoarder. Her creative writing has been featured in DMQ Review, Sweet: A Literary Confection and elsewhere.