Next to politics, money is often the last topic that people want to discuss openly – especially when you are speaking to family. The sensitivity of this topic is often magnified between adult children and their parents. While having transparent discussions about money is never easy, eventually the time comes when an aging parent may need some assistance. From simple tasks like keeping up with the bills to more complex issues like taxes and portfolio management, it is often necessary for adult children to become more involved in the finances of their parent. When and how best to approach this delicate subject is often the question.
The fact is, good financial management can be difficult at any stage in life. So, it should come as no surprise that managing the finances can become more challenging as we age. What used to be simple and routine can become daunting and overwhelming later in life. While this process is often gradual, sometimes health related issues can cause more sudden changes. As a result, it may be helpful for adult children to begin having conversations about finances with their parents early on. This is especially the case for those that have always followed a “do it yourself” approach to money management and taxes and do not rely on professional financial advice. Aging can make filing your own taxes and managing your own portfolio even more difficult, especially with how dynamic tax laws and markets are.
It is often a good idea to periodically have “check in” conversations with aging parents regarding their finances to see if there seems to be any areas of concern. Bringing up topics regarding the stock market, interest rates, expenses, taxes and estate taxes are all great conversation starters. For example, asking questions about how a parent might have been impacted by recent market declines can be a great way to gain some insights into whether their parent might have a risky portfolio. Inquiring whether they have completed an estate plan that includes a will, power of attorney or living can also provide some insights into areas that may need to be addressed. Allowing these conversation starters to evolve into discussions about paying bills, handling tax returns, and managing investments including cash reserves can help. Listening carefully for indications that they may be having difficult managing their finances independently is critical. Keep in mind, when parents begin having trouble with other aspects of their life such as handling medications or remembering doctor appointments, they may require some additional assistance with their finances too.
Rather than allow an aging parent to feel like they are losing control, consider helping them to understand that you are simply there to work with them as a team. This may help to foster trust and openness. Consider taking an inventory of their assets, liabilities, insurances and important documents. It is also important to determine if they are working with professional financial planners, accountants and attorneys or if they are trying to handle everything on their own. If they are leveraging the assistance of professionals, it is often a good idea to have a group meeting with the professional and the parent to review strategies and assess the plans that have been implemented thus far. Regardless of whether they have been seeking assistance or attempting to manage on their own, there are some common challenges to be on the look-out for.
Rather than reassess investment risk over time, too often we see aging parents maintaining portfolios that might have been appropriate for them 20 years ago. From overexposure to risky assets to a lack of diversification, there are many potential portfolio issues to be aware of. While diversification will not protect against a loss, maintaining a concentrated portfolio can increase risk. Consider reviewing the portfolio with your parents and a professional to obtain an objective look at the level of risk. This would include assessing the need to generate additional income or to rebalance their allocations. Portfolio stress testing can also help to identify whether or not a parent’s portfolio is appropriate for their life today.
Incomplete estate plans
Failing to complete or update critical estate planning documents is another area that is often overlooked by aging parents. While they might have a will in place, it may be outdated or it may not be supplemented by other critical documents like a power of attorney (POA), living will or trusts. Remember, the will handles your estate when you pass away, but documents like the POA and living will handle matters while you are living but unable to make decisions regarding the handling of matters like finances or health decisions. While this may be another delicate topic, consider beginning the conversation by stating that you want to be sure that their wishes are carried out exactly how they want them to be. This can be an effective way of working together to implement their plan.
Challenges with routine bills
Believe it or not, paying routine bills can become quite overwhelming as we age. Difficulty with memory and organization only compound the problem. Unfortunately, children often assume that their parents have everything under control when they really could use some assistance. Rather than remain in a stalemate, consider having a discussion about bills and expenses. Online tools such as bill payment, account transfer and the like can allow children to help or monitor the situation remotely.
If it isn’t difficult enough to handle traditional financial matters, aging parents often have to worry about being the target of fraud. From tax scams to ransomware, it is important for adult children to take steps to protect their parents. Consider making them aware of the types of fraud, protect their computer with top notch software and check in regularly to help reduce the chances of them becoming a victim. Unfortunately, criminals continue to become more sophisticated so this is an area that requires vigilance.
As the parent, aging is not easy and asking for help can be difficult. As the child, knowing when and how to help aging parents is also challenging. However, working on openness and a “team approach” can help parents to understand the child is not there to take control, but rather to help empower them to continue to live and manage things in a way that is appropriate for their needs. Consider speaking to an accountant, attorney and financial adviser to help assess the most appropriate approach for your family’s unique circumstances.
Kurt J. Rossi, MBA, CFP®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com, www.bringyourfinancestolife.com & www.Independentwm.com. LPL Financial Member FINRA/SIPC.