As a society, we often find it hard to discuss financial issues. Having that conversation with loved ones can be even harder. In fact, according to the study by the National Endowment for Financial Education cited here, seven out of 10 adults find it hard to discuss financial issues with aging family members.
While these conversations may be difficult, they are necessary. You should have them before your parents need help. Waiting can only make the situation more difficult. You should make sure financial issues are dealt with ahead of time. The entire family should be aware of how financial issues will be handled as your parents age.
Each family is different and has its own unique concerns about financial issues. But certain broad topics represent a good starting point for what to include in your conversation:
1. Know your parents’ assets and liabilities.
2. Know your parents’ income and expenses.
3. Know where your parents keep their financial records.
4. Know the financial professionals your parents work with.
5. Know where your parents keep important items.
Starting the Conversation
Before digging into the issues, make sure your parents are prepared for the discussion. How you approach the discussion will play a crucial role in your success in addressing a difficult topic: money.
Expressing your respect and acknowledgment of your parents’ reluctance to talk about their finances can help. You can put the onus on yourself. Tell your parents you worry that if something went wrong you would not know how to help them. You can also emphasize that you want them to maintain their independence for as long as possible. Tell them you are willing to take the lead to make that happen, but you can’t do so unless you have the necessary information.
If you’re not sure when to have this conversation, you should keep the following thoughts in mind:
· Discuss potential problems before they arise. It’s better to address the situation before there’s a crisis. Major life transitions can be a good time to have this discussion. For example, you could bring the topic up when your parents retire or sell the family home. You want to initiate the topic gently. If your parents have a financial advisor, consider asking if you can go with them to meet him or her. That will help that person get to know you.
· Have a plan. Decide what issues you want to discuss and how you want to frame the discussion first. If you have siblings, talk to them before you speak with your parents. Make sure you’re all on the same page. Treat your parents with respect. Tell them you’re concerned and want to make sure they remain safe. Be sure to listen to your parents.
· Set aside a dedicated time to have the conversation. Don’t bring it up out of the blue. Understand that the first conversation may only open the door. Follow-up will likely be needed.
· Make sure you understand any special wishes. If your parents intend to divide their estate unequally, everyone should understand why. This discussion should take place while everyone is alive, too. You also want the arrangement in writing. Communication is key. You don’t want your family relationships damaged for no good reason.
· Make sure everyone understands their responsibilities. You don’t want more than one person to have the same authority. That can only lead to disagreement.
Some Signs Your Aging Parents May Need a Hand
If your parents aren’t willingly transparent about their finances, you may want to observe their behavior. You want to look for signs of financial hardship, reckless spending, or fraud. If these issues do not get addressed, they could cause unnecessary financial issues later.
Here are some common indications that your parents may need a helping hand:
· You find unpaid bills, second notices, or bills paid more than once.
· You see stacks of unopened mail.
· Your review of their credit card statements shows unusual purchases.
· You notice your parents made contributions to charities or causes they did not support in the past.
· You observe your parents struggling with activities of daily living, including maintaining personal hygiene or getting dressed.
· You find signs of scams or fraud.
If you observe one or more of the above issues, you may need to help. The extent of help your parents need will determine how closely you need to monitor and manage your parents’ finances.
Your Aging Parents’ Finances: What to Discuss
Ideally, talk to your parents before you discover they need a helping hand. Doing so can save a lot of time. It can also help you keep potential problems from occurring. Let’s dig deeper into the key financial topics to discuss.
1. Know Your Aging Parents’ Assets and Liabilities. You should understand what your parents own (assets) and what they owe (liabilities).
This includes an understanding of their investments. Do they still own their home? Is it fully paid for, or do they still make mortgage payments? Do they own any rental properties? Do they own any insurance products? Do they have any credit card debt? If they owned a business, what happened to their share? Do they still own it? Did they sell it? Is their car paid for or do they still owe money on it?
2. Know Your Aging Parents’ Income and Expenses. In accounting terms, you want to understand their income statement (or P&L). What are their expenses? What are their income sources and how much do they receive?
How large is your parents’ Social Security benefit? Do they have any pension income? What about annuities? If they are 72 or older, are they taking their required minimum distributions (RMDs)? If they still own rental properties, how much do they earn? Who manages the property?
On the expense side, you want to know their monthly mortgage payment or rent expense. What kind of insurance do they have (especially healthcare and long-term care insurance)? Do they owe any monthly car payments? What is the status of their credit cards?
Once you understand your parents’ P&L, automate as much as possible. Help them go paperless. You can use either company portals or their bank account to automate payments. If you take this approach, be sure to store usernames and passwords for your parents in case they forget. (At Apprise, we recognize how important this is. We send all new clients a password book they can use to track this information.) You can also use an online tool such as LastPass to help them store the information online.
If your parents are not comfortable setting up an autopay system, most websites allow users to save their preferred payment method. This way they won’t have to re-enter account credentials for recurring payments. Then, you can still make the payments manually online. You can also have companies notify you and your parents via email when payments are due. These notifications will also show how much is owed. This can simplify the bill payment process and keep you from missing a payment.
3. Know Where Your Aging Parents’ Financial Records Are Kept. If your parents need any type of financial assistance, you must know where to find important financial documents. Why? They can allow you to lend as much help as possible. Plus, if they suffer from a cognitive disorder, such as dementia, you need to access these documents if their condition worsens. If you can’t, you may miss certain financial benefits due to you. You might also end up paying unnecessary fees for services they receive. The following list highlights the information to look for. It also shares some suggestions on where to find it.
· Financial Accounts. You don’t have to know the account balances, but you do have to know what types of active accounts they have. If you don’t know, or they can’t tell you, review Schedule B of their tax return. It lists dividends and interest from investment firms and banks.
· Important Insurance Information. You want to know about all the insurance policies your parents have, including auto, long-term care, life insurance (whole or term). You also want to keep your aging parents’ payments current on these policies. Missing payments can damage their credit. It could even jeopardize their healthcare benefits. Policy information can typically be found in their mail or email inbox.
· Regular Bills and Outstanding Debts. If you think your parents are not paying their bills, you should start tracking them. You’ll need to gain access to their accounts. Otherwise, you may have to pay the bills out of your own pocket.
The easiest answer here is to become an authorized user on their respective accounts. That will allow you to make financial transactions in their name.
If you plan to help your parents pay their bills, you want to ask yourself the following questions:
o What are their total monthly expenses?
o Do they have a budget? (If not consider creating one.)
o How are they currently paying their bills? Are they using online banking accounts or mailing paper checks? Do they have more than one checking account?
o Do they have a financial planner, accountant, or attorney?
· Do your aging parents have a safe deposit box? Safe deposit boxes are only accessible during bank hours. They also come with special agreements stipulating what items can be stored. Only registered owners can access a safe deposit box. This includes providing proper education and a key to the box. Otherwise, you can’t get in. If you don’t know if your parents have a safe deposit box, ask them. If they do, you want to be added as a co-lessee. If you find important documents there like a power of attorney, or a will, you want to remove them and store them at home in a fireproof safe deposit box or safe.
· Update Important End-of-Life Legal Documents. If you expect to step in and help your parents or loved ones manage their finances, you should look into finalizing certain legal documents. You will want authorization to make financial decisions on their behalf. You should also discuss their living will and advance directives. If they don’t have them already, you want to make sure that they are drafted and put in place.
· Power of Attorney. A power of attorney authorizes you to act on your parent or loved one’s behalf. It provides you with the power to make the financial or medical decisions specified in the document.
o General power of attorney. Allows the agent to make both medical and financial decisions for the grantor regardless of whether they are incapacitated.
o Limited power of attorney. Provides the agent with very specific or limited powers that terminate at a time specified in the document.
o Durable power of attorney. Takes effect the moment it’s signed. Grants the agent the powers defined in the letter.
o Springing power of attorney. A springing POA takes effect only if the grantor becomes incapacitated.
o Last Will and Testament.
4. Know the Financial Professionals Your Aging Parents Work With. It’s important that you know your parents’ financial professionals. If you don’t already know them, try and schedule a meeting (with your parents) so you can be introduced.
· Financial Advisor, Investment Advisor, or Financial Planner.
· CPA, Accountant, or Tax Preparer.
· Insurance Agent.
5. Help Protect Your Aging Parents from Scams or Fraud. According to this study, one in 18 cognitively active older adults is victimized by financial scams or fraud. Seniors suffering from cognitive decline are 33% more likely to fall for such attacks. In general, older people often have more cash and are more vulnerable when alone. This combination makes them more likely to be targeted. There are many types of scams today. The following websites are among those providing more information about common scams: The FBI, usa.gov, Broadband Search, and Investopedia. Here are a few examples of scams:
· Advanced Fee Schemes.
· Lottery, sweepstakes, and competition scams.
· Phishing scams.
· Telemarketing fraud.
· Con men posing as repairmen.
· Charity scams.
Closing Thoughts and What’s Next
Many of us are living longer. Depending on our health, we may need help. Oftentimes, children find themselves taking care of their aging parents. If you must (or want to) take care of your aging parents, there are many things you should keep in mind.
One of the big threats to the financial well-being of retirees is impaired cognitive abilities. A small but growing amount of research shows a strong link between problems with managing one’s finances and Alzheimer’s disease and other related dementias.
A study published in JAMA Internal Medicine found deteriorating financial capabilities to be among the earliest signs of cognitive decline. This research focused on Medicare beneficiaries living in single households. The reason for this focus: married couples could avoid showing signs of financial problems if the unimpaired or less impaired spouse could step in and take over such responsibilities as paying the bills.
We hope that this week’s blog as well as the checklist we shared two weeks ago can help you care for your aging parents.
May is “Caring for Aging Parents” month at Apprise. Two weeks ago, we shared a checklist you can use to help care for your aging parents. On Thursday, May 27th at 5 pm, we will host this month’s “Ask Me Anything” webinar session: “Caring for Aging Parents: Are You Ready?” You can use this link to register. We also will be sharing an “Aging Parents Readiness Quiz.” This quiz provides an excellent first step in assessing your readiness in helping your parents (and yourself) as they grow older.
If you have any questions about this week’s blog, other related issues we have not addressed, or would like greater clarification about any of the topics discussed, please join us for this month’s webinar.
In the meantime, if you have any questions, please send an email to firstname.lastname@example.org or schedule a free call.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.