In earlier posts, we discussed why it’s critical to have the “money talk” with your kids and with your significant other. In this post, we’ll discuss why it’s important to discuss your parents’ finances with them, even though you (and they) may feel like it’s none of your business. The hard truth is that it may become your business at some point, if your parents haven’t prepared adequately for their own future.
But It’s None of My Business What My Parents Make!
Well, yes and no. If your parents run out of money in their twilight years, are you going to feel okay letting them struggle? And I don’t mean struggle as in they can’t go out to dinner at fancy restaurants anymore, I mean struggle as in they can’t afford to pay rent. Or eat. Or pay for Medicare supplemental plans. Are you really going to feel okay not doing anything to help if your parents’ finances hit the skids?
You May Be Personally Responsible for Your Parents’ Finances If They Can’t Keep Up
Did you know that in many states, you could be held responsible for your parents’ inability to pay their own necessary living expenses? If you just said “oh shit,” I second that. A majority of states now have filial responsibility laws, meaning that if your elderly parents are unable to pay their necessary living and medical expenses, you may be on the hook.
Luckily, in most of the states that have such laws, the states themselves don’t enforce them. California, for example, has a law that says “Except as otherwise provided by law, an adult child shall, to the extent of his or her ability, support a parent who is in need and unable to maintain himself or herself by work.” Family Code § 4400.
Fortunately, California also has Welfare & Institutions Code § 12350, which says that “No relative shall be held legally liable to support or to contribute to the support of any applicant for or recipient of aid under this chapter.” This means that if your parent is receiving support under Medi-Cal, the state (and presumably nursing homes and other service providers) can’t come after you for unpaid bills.
The risky part about the statutory protection, however, is that it can always be repealed later. If California hits a major budget crisis again, it could easily repeal the Welfare and Institutions Code section and put children on the hook for their parents’ support again.
In the meantime, however, if your parents are eligible for Medi-Cal or another state’s Medicaid program, help them apply for it now. Or if one of your parents looks likely to need Medi-Cal or Medicaid in the near future, plan for it ASAP. Getting your parent enrolled in Medi-Cal or Medicaid might be the ticket to protect your own finances against claims from medical care providers. With nursing home costs sometime reaching $15,000 a month, you can’t afford to delay applying for benefits on your parent’s behalf.
Social Security Often Isn’t Enough
Even if you aren’t eligible for the support of your parent under your state’s laws, you may be faced with the very real problem of having a parent or parents who can’t support themselves. The average monthly social security benefit is a measly $1,341 per month. To make matters worse, 22% of married couples and 47% of unmarried folks depend on Social Security for 90% of their benefits. Yikes! Depending on where your parent lives and the state of their other finances, this may fall far short of what is necessary to actually support an elderly person.
In Southern California, where I live, you’d be hard pressed to cover rent for that amount. One bedroom apartments in Orange County go for $1,150 per month even in the lower income areas of the County. If your parent doesn’t already have a home that is owned outright, they may be out of luck. Even if they do own a home outright, there are still property taxes and insurance costs that could still swallow up that monthly benefit.
If you’re thinking your parent could downsize to a mobile home, there are substantial costs involved with that as well. Apart from the purchase of the mobile home, your parent will still have to pay property taxes and/or space rent for the entire time they live there, and sometimes the maintenance costs of a mobile home can exceed those of a traditional house. A client told me that after a very minor earthquake, her home fell off its jack stands and she had to call a crew to reposition it. And where traditional homes tends to have standard sizes for plumbing fixtures, appliances, and other components that need repair or replacement over time, mobile homes usually have funky scaled-down sizing that can make it difficult or impossible to find replacement parts at your local Home Depot.
All this is to say that if your parent is planning on relying on Social Security as the cornerstone of his or her retirement plan, you had better sketch out your plan in advance for what that will look like. It might involve your parent moving in with you, or some other drastic measure that you and your parent might not enjoy. Better to discuss it early, when you might have more time to develop an out-of-the-box plan.
For example, if your parents live far from you, then maybe your parent has a younger friend or neighbor who is willing to move in with them and take over some of the ordinary expenses in exchange for the right to inherit your parent’s property. You and your parent might prefer an arrangement like that, as opposed to having your parent live with you or hiring a full time round-the-clock caregiver, which can be prohibitively expensive. By talking it out early, you’re more likely to find an arrangement that works for all of you and doesn’t wreck your retirement plan.
Do you know the state of your parents’ finances? Are you planning to have the money talk with them to figure it out? Scroll to the bottom and let me know in the comments.