7 important steps when you're considering financial planning for your parents

Last month you read about how financial planning can give your children the best start in life and help them towards a secure financial future.

In this article you can find about the other side of the coin – financial planning for your parents.

It’s never too soon to start thinking about some of the issues you may face when it comes to your parents’ finances, especially if they are in ill health.

It may not be straightforward and could involve difficult conversations. So, you could easily find that there are certain things you need to be sensitive to.

To help you start, here are seven key things to consider.  

1. Start with a conversation

Conversations about money and health can often be awkward.

They’re called “personal” finances for a reason, so sharing those details can often be challenging. Likewise, when it comes to talking about your health, there’s always a certain reticence to share information – even with close family.

In both cases, the awkwardness and reticence may increase when you’re talking to your parents about these potentially sensitive topics.

One often-overlooked reason for finding such a conversation difficult is that it can be perceived as being the moment when your parents stop feeling they are still looking after you, and the roles are starting to reverse.

Even though you’ve set up your own life and have your own finances, there’s a good chance your parents still feel an element of parental responsibility – however odd that may sound.

So, when you decide the time is right to start asking questions about their financial arrangements with a view to helping them, it’s wise to tread carefully.

However, it’s entirely possible that, once you’ve got the initial awkwardness out of the way, you’ll find them willing to share details.

You may even discover that they’ve wanted to tell you but haven’t wanted to worry you.

2. Help them get organised

As is the case with your own financial planning, a key priority is to ensure their records are in order and everything is accessible and organised.

Knowing everything is straight will give you both valuable peace of mind. It’s likely to help you identify any red flags – allowing you to pick up on issues that may need urgent attention.

It also means you’ll be able check some critical issues such as whether they are in receipt of all the income, such as benefits and pensions, they should be.

With everything set out correctly, you’ll also have an idea of their overall financial position and whether they need financial support they may have been reluctant to ask for. At the other end of the spectrum, you’ll be aware of whether you could be facing a large Inheritance Tax (IHT) bill if steps aren’t taken.

3. Ensure they have Lasting Powers of Attorney set up

If your initial concern about your parents’ finances has been prompted by one or both of them being in ill health, an important step will be to help them to set up Lasting Powers of Attorney (LPA) so that you, or someone else they trust, will be able to manage their financial affairs if they are unable to.

As well as giving them the reassurance that their affairs will be well cared for, having an LPA in place speeds up the process of gaining control of their finances if they’re unable to take care of things for themselves.

4. Make sure they have up-to-date wills in place

Another of your priorities should be to check that your parents have wills set up, and that they are up to date and still relevant to their circumstances.

This will ensure that, when they die, their estate is distributed in line with their wishes, and also gives them the opportunity to decide who will be responsible for the process of distribution.

You may be interested to know that we partner with Gosschalks Solicitors to offer an Online Will Writing Service that can help make the process straightforward and simple to complete.

5. Review and discuss their living arrangements

One issue that is likely to be central to any discussions you have with your parents about their finances will be where they live.

It’s understandable that they will most probably want to stay in their current property as long as possible. But what will happen if that property ever becomes too big for them to manage?

Downsizing to a more manageable home is a popular option. Not only does it give them the potential opportunity to move to somewhere closer to their family, but it can also free up some capital that they could make use of.

Further down the road, there’s the possibility of their circumstances changing and independent living no longer being possible…

6. Be aware of potential care requirements

If you reach the position where one of your parents can no longer look after themselves – even with the support of their partner – then it’s time to consider care packages.

This will require a careful balance between respecting their wishes and being aware of their ability to look after themselves safely.

Again, it can help to have had conversations about this well before it becomes a possibility. This way you can potentially make the process easier to manage if and when they subsequently need support.

It’s important for you to stress that this won’t necessarily mean moving to a care home. It’s entirely possible for all care needs to be fulfilled through a domiciliary care package that will enable them to continue to live in their own home.

A further option is to sell their current property and utilise the capital raised to maintain a level of independence by moving into a retirement community, consisting of self-contained flats with support services permanently on call.

If moving into a care home does ever become necessary, be aware that you’ll need a clear idea of their financial position along with details of the financial support available.

7. Plan further into the future with effective estate planning

Earlier this year, FTAdviser reported that in excess of £27 billion was paid in IHT in the period between 2017 and 2021. And the Office of Budget Responsibility are projecting an increase of 36% on this figure in the next four-year period.

These figures demonstrate how important effective estate planning can be to help protect the value of your parents’ assets from HMRC.

Inheritance Tax planning can be a complex issue and, along with the other points you’ve read about in this article, we would strongly recommend you get expert advice.

Get in touch

To find out more about financial planning for your parents and how we can help, please get in touch. Email info@aspirafp.co.uk or call us on 01454 632 495.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Tax levels and reliefs could change, and the availability of tax reliefs will depend on individual circumstances.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not indicative of future performance.

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