One of the subjects our advisors bring up with our clients during every annual review —and with new clients — is what kind of plan is in place to take care of their parents, if their parents are still living.
Why this conversation is critical
Many Americans end up helping their aging parents financially, and often, it happens unexpectedly. If they do not include this significant expense in their financial plan, it can derail their own plans for retirement. Also, as advisors, we need to start this uncomfortable yet critical conversation with our clients because research shows that people do not like to discuss their parents’ finances with them.
According to a recent survey by the American Advisors Group (AAG), 55 percent of adult children said they are not financially prepared to help their baby boomer parents cope with rising inflation and living expenses. More than one-third of adult children worry that their parents will become a financial burden for them. Yet almost half admitted they have never brought up the subject of finances with their senior parents! And half of these adult children do not know how much debt their parents are carrying.
Another recent study revealed that almost half of respondents admitted that they would rather discuss funeral plans with their parents than financial planning! And just over 30 percent would even choose to inherit less money after their parents’ passing if it meant they didn't have to be part of the financial-planning process. This shows you just how reluctant people are to discuss finances with their parents.
Approximately one-third of GenXers and millennials are supporting their parents financially. Nearly the same number are managing, or helping to manage, their parents’ health care. Two in five spent more than $10,000 of their own money supporting their parents in 2020.
This reality is predicted to continue because every day, an average of 10,000 boomers (those born between 1946 and 1964) reach age 65, and another 10,000 turn 75. And, unfortunately, almost 80 percent of middle-income baby boomers have no savings designated to cover their retirement care.
Far too often, I see people experiencing financial hardship because one or both of their parents experience a decline in their health and have no plan in place for their own care. So now, when they least expect it, the adult children have to scramble to support their parents financially — or care for them in their own homes, which also can involve a significant commitment of time, money and other resources.
As a financial advisor, I feel it is my obligation to help my clients avoid this type of all-too-common financial crisis. One of the first questions I ask clients is, “Are you going to need to support your parents financially, or are you expecting financial resources from your parents?”
Most of the time, they don’t know. So then I’ll ask if they know who is in charge of their parents’ estate, if anyone, and if they can find out that information. Many times, people don’t know that, either.
At this early stage in the process, I am not looking to create a financial plan that includes the parents’ care. I just want to bring up the topic and try to discover how my clients plan to take care of the parents in the future and how that might impact their own financial plans.
People think their life span will be similar to that of their parents
I’ll often ask what Mom and Dad’s names are, how old they are and where they live. If one or both parents have passed, I ask what their names were and at what age they passed. Then I will ask my clients, “Does how long they lived have any bearing on how long you think you’re going to live?”
I ask this because it is a critical factor in doing a “95 time horizon” on someone. Of course any health issues our parents have dealt with could affect our own longevity, if they are hereditary. Also, our parents’ longevity typically affects our beliefs about how long we might live, whether or not they end up being accurate.
For example, let’s say I am speaking with a client who is in her 50s about retirement. She says she wants to retire at the age of 60. I tell her we want to develop a financial plan that will help ensure she has enough money to last her through 35 years of retirement, based on the assumption that she will live to be 95. Then she tells me that both her parents passed away in their 60s from health issues. It is going to be difficult for my client to think she’ll live to the age of 95 when her own parents passed away close to the age she is right now.
We ask a lot of questions to guide you to the best solutions
During my career, I have seen clients realize, all of a sudden, that they have been named the trustee or personal representative for their parents’ care. Often, the responsibility of caring for ailing parents causes a lot of turmoil in family relationships, and it creates a crisis. With the proper planning, you can avoid this scenario.
The whole purpose of planning is to avoid a crisis and to plan for potential “What if?” scenarios. This is an extremely important part of the onboarding process when we are getting to know new clients. If your advisor is asking you these questions, please know that it’s because he or she wants to help you avoid unexpected expenses in the future. As we build out your financial plan, we want to make sure you are prepared for all potential situations.
Also, because the health status of aging parents is always changing, we will circle back with you often and ask for updates on the status of your folks’ health and finances. We will make sure we answer any questions you have and encourage you to talk with your parents to do as much advance planning as possible.
We want to know who the trustee, executor and/or personal representative is for your parents and what types of estate documents have been drawn up or need to be prepared. We will check to make sure the name of any beneficiaries on retirement accounts match the beneficiary names on your parents’ wills and life insurance policies. Having everything in order will prevent a lot of delays, stress and paperwork later.
We will talk with your parents for you, if you like
It's not pleasant to try to discuss the topic of finances and end-of-life care with parents, I know. It’s ironic that parents often keep their financial details hidden from their children because the children will find out in the end anyway.
If one or both of your parents ends up requiring home health care or assisted living, we want you to have everything in place already so you and your family can focus on supporting one another. If we avoid asking the difficult questions and fail to plan, the result is likely to involve regrets and inconvenience.
One of the many benefits you receive as our client is that we will talk with your parents, if you like, so you and your siblings don’t have to have this difficult conversation. We are happy to talk with your parents about how we might be able to simplify, consolidate and prepare their estate for the wealth transfer that’s going to happen. We will answer all the questions they have, which might be different from the questions you and your siblings have.
In many cases, we offer second opinions when families aren’t sure everything is in the proper order. We will work with you to make sure your parents’ wishes are executed. Having your advisory team remove this burden from you can relieve a lot of stress and worry about making sure your parents are taken care of in the best way possible.
Handling parents’ finances and health care as they age can be difficult enough. It gets even more complex for families involving adopted children, blended households and estrangement. By asking questions, we can uncover potential issues, fix them and gather important information about your parents’ situation while we can.
The sad reality of role reversal
One of the hardest things in life is when the child has to become the parent and the parents become the helpless children — role reversal. Sometimes, parents who need help become stubbornly uncooperative. That makes the situation even more difficult, both emotionally and logistically.
One of the most common, and upsetting, realities as parents age is that at some point, it is no longer safe for them to drive. Taking the car keys away from them — in essence, removing the independence they’ve enjoyed for decades — can be a stressful ordeal.
Incapacitation is inevitable, in many cases. Deciding when your parents are no longer able to control their finances, when they need to downsize their home or when they need help with their daily activities are often decisions the adult children have to make. Most parents are not going to relinquish control over their lives voluntarily or readily. These are all planning points.
Planning can help you avoid the unpleasant probate process
When someone passes away without a will, the person is considered to die intestate, and a probate court will decide what happens to the person’s assets. The estate has to go through probate. It can be a hassle — slow, costly and a matter of public record, so most people want to avoid it.
Probate laws vary by state, but in general, probate is a court-supervised legal process that distributes the assets and property of someone who has died. The estate’s executor or attorney begins the probate process.
By planning in advance, you can avoid probate, which will help make the wealth-transition process smoother and more effective. The goal is to let our parents age with dignity and financial independence while also putting in place agreeable protections and having a plan to cover their needs.
During my career, I’ve had to rush legal documents to a hospital, hoping there’s still time for someone who has been injured in a fall or car accident to sign documents before passing away. That is incredibly stressful for everyone involved, especially the loved ones! With proper planning, you can avoid the last-minute rush to try to avoid court fees and penalties and make sure your loved one’s assets get distributed to the people and/or organizations he or she intended.
Laws regarding taxes, retirement savings and other financial issues are always changing. The SECURE Act 2.0, passed on Dec. 23, 2022, makes it easier for workers to save more money for retirement. This act changes rules related to retirement accounts and can impact your and your parents’ retirement savings and personal finances significantly. As your advisors, we will be working with you to ensure that you are receiving the optimum benefit from these changes.
We will lead you through it
As elderly parents approach their end-of-life years, important decisions about their care fall onto the shoulders of their adult children. This life stage can be stressful and upsetting, but we cannot hide from it or put it off. We must face it and plan for it. The more planning we do in advance, the easier the process becomes.
We consider it a privilege to help walk our clients through that journey and to prepare them as best we can for the decisions that need to be made.
Have you done a financial inventory for your parents, to document the assets and documents they have and where they are located? Do you know what types of insurance policies they have and where they are? If they have a safety deposit box, do you know where it is and where the key is? Do you know where their estate documents are and if they are signed? Do the beneficiary names match on all their documents? If you aren’t sure where to start, please contact us, and we will lead you through it.