As parents get older, more thought is needed to manage their finances, plan for long-term care, and ensure wealth is passed on to future generations.
Initiating conversations with your parents can be difficult, but it’s something you may need to do to understand the entire financial picture. If you haven’t brought yourself to talk with them, you are not alone. Roughly 73 percent of Americans haven’t had detailed talks with their aging parents, a 2019 survey by GOBankingRates found. The top reason people between the ages of 45 and 54 didn’t bring it up was because they were afraid to. But a 2022 study by the Australian Research Council Centre of Excellence in Population Ageing Research determined the best age for making smart financial decisions is on average 53 or 54, so you may want to put that conversation higher on your priority list. And it’s one that may make planning for your own future easier.
David John, senior strategic policy adviser at the AARP Public Policy Institute and deputy director of the Retirement Security Project at the Brookings Institution, recommends that siblings discuss the matter among themselves before talking to Mom and Dad to avoid a disagreement that could turn into “a major rift.”
“It is very easy to start that conversation on the wrong foot. From that point, everything becomes somewhat more difficult,” John says. It has to be done very “delicately, diplomatically, and gently.”
He says that often aging parents are aware of their financial situation. “In many cases, especially with younger families, there is an assumption that Mom and Dad aren’t as sharp as they used to be and, therefore, they need me to deal with the situation. And that is very likely not to be the case, especially initially. … People make silly financial mistakes at any age.”
When to Step In
The time to step in is when there is some level of mental deterioration. “My mother had been incredibly responsible with the finances,” John says. “Over time, she reached a point when she figured ‘I have checks left, so I must have money in the bank.’ After that, my sister took over her day-to-day finances.” He says your financial institution may be able to help with the transition when someone can’t adequately manage accounts.
You will want to sit down with your parents and their financial adviser. “If they don’t have one, work with them to retain someone. The first and most important step is to inventory all of the assets when the relative is still functioning and at full capacity,” says Maryann Keith, a financial adviser with Beden Wealth Management of Tysons.
While some financial advisers charge a flat or annual fee, most charge based on how much money they manage for you, up to 1 percent per year.
Who Should Handle Finances
After inventorying assets, make sure power of attorney documents are properly executed and that financial institutions will accept them. The power of attorney will clearly spell out who can manage financial affairs while someone is alive.
Selecting who will manage those affairs may have more to do with proximity to a parent or older relative more than anything else. Keith says power of attorney is “sometimes given to the child who is local; sometimes it’s given to a niece or nephew who is local. You want to give power of attorney to somebody who is geographically close enough to help and who you really trust is going to follow through with your wishes.” You can give power over health care matters to someone who best knows the relative’s medical issues.
Without an inventory of assets and power of attorney, Keith says you can’t do anything to help.
Discuss the Future
The next step is to look at costs and discuss what type of lifestyle your parents want later in life and how they want their assets distributed. Options may range from living at home, with the possibility of needing in-home care, to retirement communities that offer differing levels of care. An adviser can help with cash flow modeling to show how much money is needed for different scenarios. It is likely that much or the bulk of their wealth consists of assets that don’t produce income, such as the family home, says Christopher Krell, senior partner at Cassaday & Company, Inc., a financial planning firm in McLean.
It can be a difficult topic for some families. “You want to be as nosy as you can be, without pushing them away,” Keith says. Each family’s situation will determine whether your parents should speak privately with an adviser, or everyone should meet together. “The important thing is to exercise patience in getting your loved ones to open up about their finances. It can take some time, and sometimes time is of the essence,” she says.
And you will want to make sure assets are titled appropriately, says Judy Hackler, executive director of the Virginia Assisted Living Association. For example, a married couple should “make sure a car is titled in two names so there’s easier transition” in case of death or dementia, she says. “Same with bank accounts and other assets.”
That discussion between generations needs to be ongoing, planners say, because a number of factors, like inflation, may affect finances. John says while the first year of retirement is one when costs tend to be high because people reward themselves for their successful careers, it’s the years after that when things change. “Regardless of income, the amount spent tends to go down year by year until assisted living comes into play,” he says.
Is There Long-Term Care Insurance?
In looking to the future, financial advisers say you will want to look to the past to see whether your parents took out long-term care insurance.
“Most people would prefer to stay in their own home and have care come to them. As long as a long-term care policy can cover in-home care, it is very attractive to people,” says Krell.
“Unfortunately, some long-term care policies purchased a long time ago don’t include assisted living as a benefit,” Hackler says. You’ll want to review the older policy to see what it covers and reach out to the company that issued it to see whether there are any addenda. “Better to check before you need it or before your loved one needs it,” she says.
Pamela Lauzau O’Connor learned the hard way about not having coverage. She was a stay-at-home mom with three children, married to a lawyer who was making good money specializing in international aviation.
Then, when he was in his 50s, her husband developed frontotemporal dementia and eventually couldn’t find his way around. It was too late to buy long-term care insurance. O’Connor had to start driving a school bus and selling real estate to make ends meet. Ultimately, she found a caregiving situation in a private home that her husband’s monthly disability check would cover. “I was very lucky in that way,” she says. Her husband died in 2011 at age 66.
Now retired and living in Maine, O’Connor bought long-term care insurance for herself, at Krell’s direction. “If I never need it, it’s OK. If I need it, I didn’t spend money for nothing.”
Feature image, stock.adobe.com
This story originally ran in our January issue. For more stories like this, subscribe to Northern Virginia Magazine.
