Money & Career

What to do about your parents' debt

©iStockphoto.com/Yuri Arcurs Image by: ©iStockphoto.com/Yuri Arcurs Author: Canadian Living

Money & Career

What to do about your parents' debt

Last year a law was proposed in China that would mandate that adult children must visit their elderly parents and pay them a monthly stipend if they live at or below the poverty line. The law was meant to offer support to the increasingly isolated elderly population.

In Canada, we might not have such a law yet, but the numbers aren't pretty. According to Statistics Canada, one in three retirees over 55 -- and two in three over 55 who aren't yet retired -- are in debt.

Are you responsible for your parents' debt?

The moral responsibility of children to care for their parents is an open question -- but do children have a legal responsibility for their parents' debt?

"Contrary to popular belief, in Ontario, there is no obligation for a child to assume their parents' debt," says Suzana Popovic-Montag, managing partner at Hull & Hull LLP, though she does add that the law in all provinces except Alberta does allow for a parent to be provided support by a child under certain circumstances. But that doesn't mean that children are legally responsible for their parents' debt, Popovic-Montag says. "All they can do is seek an order for support in a situation where they are destitute."

But even if you're not legally obligated to help, you'd probably like to see your parents' financial situation improve. So how can you help your parents if they're facing retirement with debt -- or if they're already there?

1. Talk to your parents about their finances
You may not want to talk about money with your parents, but it's the only way you'll get a good picture of what's going on. Sit with them and ask them about their financial situation. Emphasize that the discussion isn't about what they're leaving you in the will but about ensuring that they're prepared for retirement.

If you find them reluctant to talk, start by telling them about how you're making choices to prepare for the future, and be ready to have several shorter conversations rather than one longer one as they get more used to the idea of talking with you about money.

Page 1 of 2 -- Discover four more things to do about your parents' debt on page 2
2. Offer to pay for a financial planner
Financial planning can be complicated and your parents may not have the skills to take advantage of the market. Consider finding and vetting a financial planner who can work with them to maximize their savings. If your parents are young enough to be affected by the changes to Old Age Savings from 65 to 67 (they were born after March 31, 1958), now is the time to revisit their financial plan and adjust it to suit the change.

3. Watch out for credit scams and offers
Elderly people are often the targets of fraudsters, and it's shocking how much credit a bank or credit card company will offer to a senior with limited income. It's a good idea to work with your parents and update them on the latest scams -- and make sure they have a handle on any credit. While it won't make them more money, it will prevent them from losing their retirement to an unscrupulous person or exorbitant interest.

4. Take the necessary precautions and be their financial guardian

Seniors can start overspending if they are affected by dementia and lose perspective on money. If a parent seems affected and you notice red flags, there are a few steps you can take.

First, you can request that flags be placed on their bank and credit accounts for unusual spending patterns. You can also have credit card limits lowered. The worst-case scenario is to either retain power of attorney or have someone you trust appointed as a financial guardian.

5. How to deal with debt
If money's been spent, one of the first things to do is find the receipts and return as many items as possible, explaining the situation. Once that has been done, the next step is to call the credit card company, again explain the situation, and negotiate a payment plan or lowered interest rates.

It's not fun, but certain institutions are trying to make the process a little easier. The National Initiative for the Care of the Elderly, for example, has a series of tools that can help you start the conversation about money, debt and financial responsibility.

Retirement is no longer expected to be secure. More and more people are retiring without a government or company pension and with debt. By working with your parents to help them maximize their assets, you'll help them enjoy a retirement free of money worries, leaving them (and you) more time to enjoy life and family.

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