Talk to Your Aging Parents about Money
Don’t wait to discuss financial planning with your parents. The time is now.
Many people with aging parents find it difficult to sit down and have a serious conversation about money. It seems like the obvious thing to do, but in a recent survey by the National Endowment for Financial Education found seven in ten people say major barriers are preventing their families from openly communicating about making financial decisions on behalf of an aging family member.
“This is a touchy topic for everyone involved. But if adult children think discussing finances is hard, just wait until their parents become sick from a debilitating disease like dementia or Alzheimer’s and their whole life savings are sucked dry – that’s hard to take, and it happens all too often,” warns Gary Herman, president of Consolidated Credit.
The numbers of this survey speak for themselves:
- Forty-seven percent of elderly surveyed said they have had trouble with bills, paying them late or not at all
- Thirty-six percent have had difficulty calculating simple math problems
- Thirty-five percent have made irrational purchases
- Twenty-one percent have depleted their savings accounts
How can you beat the odds and rescue your parent’s life-savings and your inheritance? Use these tips.
Step 1. Start the conversation
The first step is to set up a time to speak with your parents. If you have brothers or sisters invite them to the discussion. It should not be confrontational. You’re all there to find out pertinent information about your parents finances and to see what they have in place for their future, such as a will, an advanced healthcare directive or maybe nothing at all, which could lead to trouble.
Step 2. Talk about wills and estate planning
A will is a legal document that allows a person to specify how their property should be divided and how custody of their children should be handled upon their death. It exists as an alternative to default methods for dividing property and arranging for child custody, which are determined by individual states. The “default method” is a lengthy and expensive legal process known as probate, which you should avoid at all costs.
As part of the estate planning and will process, a person can choose to make trusts or gifts to heirs or charitable organizations, which can be used to reduce the amount of taxes due upon death, as well as making sure that personal wishes are honored.
Although legal wills can be created without the assistance of a lawyer, it is a good idea to hire a lawyer to assist with the process, particularly if your parent’s wishes regarding property division are at all complex, or if there is a desire to minimize tax implications surrounding inheritance issues.
Step 3. Set up an advanced health care directive (AHCD)
An AHCD is a document that instructs others about your parents medical care should they become too sick to make proper decisions on their own. It becomes effective under the circumstances defined in the document, and allows your parents to do either or both of the following:
- Appoint a health care agent. The AHCD allows your parents to appoint a health care agent (also known as “Durable Power of Attorney for Health Care,” “Health Care Proxy,” or “attorney-in-fact”). This person, usually a spouse or family member like a son or daughter, makes certain the wishes in the document are fulfilled. These wishes include prolonging life or withholding treatment under certain conditions, as well as artificial means to prolong life amongst other things.
- Prepare instructions for health care. This is often called a “Living Will” and it summarizes your parents’ requirements about life-sustaining treatment if they are terminally ill or in a coma. They provide the instructions for their future health so when they can no longer speak or are incapacitated in some way, their future care is clearly documented.
Step 4. Establish power of attorney
A power of attorney is a document in which the parents appoint someone to act for them. AARP says this about a power of attorney: The power of attorney allows you to pick someone you trust to handle your affairs if you cannot do so yourself. It gives you peace of mind, reassuring you that in an emergency, someone you choose will have the authority to act for you. If you don’t have a power of attorney and you are suddenly incapacitated, your family may have to go through an expensive and time-consuming court action to appoint a guardian or conservator to make decisions for you.
There are three types of power of attorney:
- “Conventional” begins when the parents sign it and ends when they become incapacitated.
- “Durable” begins when the parent signs it but doesn’t end until death
- “Springing” begins when something happens, like a parent becomes incapacitated.
The durable power of attorney makes sense to most experts.
Step 5. Explore trusts
A trust is a legal device into which your parents’ assets can be contributed. Monies contributed into the trust are no longer the property of your parents, but instead now belong to the trust. The trust can be set up in various ways so as to pay out income to your parents during their lifetime, and then disburse the remainder of the assets to beneficiaries upon your parents’ death.
The major benefit of setting up a trust is to shield assets that would otherwise have to be sold off to pay for care before government care benefits activate. In order for a trust to work, it must be set up years before your parents require care. Trusts are complex and should only be created and managed by a knowledgeable lawyer. Consult with a lawyer who handles estate planning for further information on trusts.
Planning now for the future is essential in order to protect your parent’s finances and make certain that their hard-earned assets are passed down to their family. If you or your parents need help budgeting or just want to speak to a certified credit counselor about money management, call Consolidated Credit today at 1-888-294-3130.