The Grey Area: How To Support Aging Parents With Debt

Growing up, most of us had a parent(s) or guardian that supported us financially. Whether it was paying for hockey, supplying your weekly allowance when your chores were done, helping you buy your first car, or co-signing your first lease, you could always look to this person for support when funds were getting low. But now as your parents are figuring out how to live in retirement, they may be the ones a little low on cash flow.

According to the 2018 Sun Life Financial Barometer Survey, one in four retired Canadians is living with debt. This debt could have been brought into retirement, e.g., a mortgage or car payment, or could have accumulated over time due to a reduced income or lack of financial planning for retirement. While it can be hard to discuss money issues with your parent(s), there are ways you can help them achieve greater financial wellness during retirement.

LEARN THE WARNING SIGNS

It can be difficult to figure out if your parent(s) is dealing with debt, especially if they don’t live close by. However, there are a few warning signs that you can look for to help you get a better sense of their financial situation.

• Their bills are piling up. When you go to visit, or perhaps even on your weekly FaceTime or Skype call, you notice their mail or stack of bills is piling up. This could be a sign that they are having difficulty making payments and are avoiding the debt.
• They are relying on credit cards. If you notice your parent(s) is relying on credit cards more and more to pay for basic needs or to pay off their bills, this could be a sign that they are in financial difficulty.
• They seem more stressed than normal. Financial stress affects everyone, but it can really take a toll on those who are dealing with overwhelming amounts of debt. If you can sense that your parent(s) seems stressed when paying for meals, buying gifts or are more stressed in general, they could very well be suffering from financial stress. Weight loss is also a sign that someone may be dealing with a large amount of stress in their life.
• They are asking you to co-sign a loan or debt. If your parents have never asked you to do this before, or are unable to get approved for a loan on their own, this is a strong sign that they may be dealing with bad credit and/or financial difficulty.

HOW TO LEND A HELPING HAND

If your parent(s) is from an older generation, talking about money and debt may seem taboo to them, but it’s important to have these conversations in order to know how deep into debt they may be. Once you have a sense of their financial situation, it will be easier to assess how much assistance they will need.

Of course we would all love to be in a financial situation where we can monetarily support our loved ones when they are struggling, however, for most of us paying off our parents’ debts isn’t an option. The following are some steps you can take to emotionally support your parents towards resolving their debt.

• Offer to help them create a budget. If your parents are recently retired or have had a change in their pension or CPP, they might have to redo their monthly budget or spending plan to reflect the change in income. Offer to help them create an Excel spreadsheet which will automatically make calculations that show the changes in their income and expenses. This will be a helpful tool for them, and it will also give you the opportunity to have a firsthand look into their income and expenses.
• Take them to a financial planner. If they aren’t comfortable talking about their finances with you, offer to take them to a financial planner. This way they will be able to get the support they need when it comes to budgeting and best managing their investments. When pursuing this option, it’s important to make sure your parent(s) goes to a reputable and respectful financial planner that won’t take advantage of them. Be sure to check reviews and referrals before making any appointments.
• Keep yourself and them aware of the latest scams. Seniors are often victims to financial scams like CRA, phone, and credit card scams. In order to stay protected, it’s important to educate yourself and your loved ones on the latest scams, so they are able to tell the difference between a real and a fradulent situation. Check out the Canadian Anti-Fraud Centre for the latest updates on scams trending in Canada.
• Reach out to a Debt Professional or Licensed Insolvency Trustee. At Grant Thornton, we often receive calls from people who are worried about the financial stability of a loved one. If you have questions about what debt relief options are available for your parent(s) or would like to have someone talk to them about their options, contact us about setting up a free, confidential consultation.
• Discuss becoming their power of attorney. If your parent(s) is becoming elderly, is showing signs of dementia, or isn’t currently stable enough to properly control their finances, discuss with your family members about becoming a power of attorney for your parent(s). A power of attorney is a document in which one person appoints another trusted person to act for him or her when it comes to financial, medical and legal affairs. Your parent(s) may already have someone lined up for this position, or you and your siblings may have to discuss who would make the best fit. Generally, the POA is someone who lives close to the dependent, has good financial management skills and can make themselves available to deal with any matters relating to the dependent.

ARE YOU RESPONSIBLE FOR THEIR DEBT?

Many children and parents worry about the financial burden that will be left behind when a loved one passes. However, a common misconception is that a person’s debts are left to their family once they are gone. In fact, a person cannot inherit someone’s debt unless they have co-signed for that debt.

Although debt doesn’t disappear after someone’s passing, generally it will get settled by the estate before the beneficiary takes control of the assets. If the debts are greater than the assets left behind, the beneficiary will receive nothing and the creditors will have to write off a portion or all of the debts as bad loans. If you are the beneficiary to someone’s estate and creditors are calling demanding you to pay for their debts, you are not obliged to do so.

If you have further questions on the warning signs of financial difficulties, how to assistant your parent(s) with resolving their debt, or about what happens to your loved one’s debt after they pass, contact one of our Licensed Insolvency Trustees or Debt Professionals. We will answer any questions you might have and will be happy to discuss the best options available to give you and your loved one some financial peace of mind.