As recently as ten years ago, this issue seldom came up. Now, we meet with people every week that need to understand what they can do to deal with their parent’s debt. In most cases, the adult children that come in to see us have no idea how much their parents owe or what they did with the money that they borrowed. It is a sad state of affairs for everyone involved.
The takeaways from this all too common situation are simple:
- Keep an eye on what activities your parents are doing. Consider if their lifestyle fits with their apparent financial situation.
- Make sure you have open communication between all siblings and grandchildren and an understanding about borrowing money and paying it back.
- Don’t be embarrassed to talk to your parents about their money. Ask if their bills are up to date and if they are managing to keep up.
- Focus on issues like on-line banking, investments and debt. Newer services, and computer based systems, can be quite confusing and they may need your help keeping up and staying safe.
- If appropriate, arrange for a financial power-of-attorney just in case it becomes necessary.
- If things are very serious, seek professional help. In our practice it is not unusual to have a son or daughter attend the initial consultation to help put their parents at ease and give them someone in the family to discuss the solutions with.
Let me give you an example of a family I met with recently the parent’s, John and Mary (not their real names) owe somewhere between $150,000 and $200,000 in unsecured debt. The kids, David and Susan (again, not their real names) only found out about the debt when John and Mary went on a trip and David was picking up his parent’s mail. He found numerous bills, many marked past due. John and Mary are pensioners in their 80’s. John retired from the workforce over 20 years ago and they have been mortgage free throughout his retirement. Their combined monthly income is around $2,500 per month.
The first question the children always ask is, “how did they get approved for so much credit?” In this case, it is because the parents own a home worth $300,000. The house provides their creditors with all the asset value they might want in order to keep increasing John and Mary’s debt limit.
The second question is always, “what did they do with the money?” This is tougher to answer, but usually the parents have borrowed to help children or grandchildren, other family and friends. In this case, John and Mary are quite active in their church and they go to Central America at least once a year to help with a mission there. John and Mary have 10 children and twice as many grandkids. While David and Susan didn’t borrow from their parents, they suspect a number of their siblings may have. No one ever asked what kind of shape mom and dad were in financially, so no one felt too guilty about borrowing from them.
Believe it or not, I think John and Mary are lucky that their kids discovered their situation now, before anyone has taken legal action and put a lien on the house. Right now, the parents have options. After a lawsuit or two, the debt level might increase to the point that there’d be no equity left in the house and therefore nothing left for the parents.
In this case, the solution the family has settled on is to sell the house. John and Mary wanted to move into a senior’s community anyway so they wouldn’t have to look after a house while travelling and they could use the proceeds to pay down the debt. The money left over from the sale, roughly $100,000 will be used to supplement their pensions and as a nest egg for them. At the same time, the kids are going to speak to their siblings and their siblings kids, as well as the pastor at their parent’s church. The goal of these discussions is to try and recover some of the money that may have been borrowed in the past and to stop more money from going out in the future. If the parents agree, David and Susan may also take control of their parent’s bank accounts as a way to protect them from further “generosity”.
Not everyone is as lucky as John and Mary. In many case we end up discussing a consumer proposal or even filing bankruptcy as the correct solution when a parent’s financial problems become overwhelming. In the end, it comes down to each family’s unique situation. Do they have equity like John and Mary, or have they already liquidated every form of savings and investment that they had, and now have nothing left except their debt?
Unfortunately, I think everyone needs to consider whether or not they need to review in detail their parent’s financial situation. The reason is as much to protect yourself and your family, as it is to look after your parents.
If you don’t take the time to look, you might find out about your parent’s money problems too late for them to deal with them directly. Instead, you may need to take active control of their finances, or worse, start providing them with financial support in order to make ends meet.