So what happens when our parents can’t take care of themselves any longer? Often we’re forced to step in and take over, sometimes with surprises and bits of missing detail to deal with. Before that has to happen, most of us would be wise to have a little chat with our parents to find out about their money and their wishes for their future.
The Money Talk
If you haven’t had this little chat, you may need to do some prodding. The best time to talk about money with aging parents is when they’re healthy and independent. But it won’t necessarily be an easy conversation, particularly if a parent’s motto has always been, “You don’t have to worry about anything, I’m fine.” Persistence is key.
There’s a real danger for children who know nothing about their parents’ financial situations. How will they know what type of care would be affordable if a parent has an accident or becomes ill if they have no clue about a parent’s finances? And if they don’t ask their parents how they would like difficult situations handled, how will they know what their parents would want if they couldn’t do for themselves? Without these answers, guilt and second-guessing have a tendency to take over and adult children end up tying themselves into knots trying to figure out the best thing to do.
Without knowing where all the important stuff is – the money, the investments, the insurance, the safety deposit box, the will, and the powers of attorney – clients will be scrambling to unearth these financial secrets just when they’re also having to cope with a parent’s death or disability. It’s so much easier just to talk about it. An advisor can play an important role in that discussion by acting as mediator to the conversation, advisor to both sides in terms of the impact of decisions on each party, or as a sounding board for children and their parents. An advisor’s unbiased and unemotional involvement will be invaluable. There is also elder mediation available that can help families to open conversation.
So what should adult children know about their parents’ financial lives? To start, they need to know where to find personal and financial documents in the event of an emergency, including:
• where they bank;
• where their investments (RRSPs, RRIFs, mutual funds, etc.) are held;
• who their accountant, lawyers, brokers, and financial planners are;
• where the will is kept and who the executor is;
• where other legal documents such as powers of attorney are kept; and
• who their insurance agents, companies, and advisors are.
You may be reluctant to ask these questions, and parents who are still actively involved in managing their own finances may not want to answer them. For everyone involved, these questions could be perceived as “prying,” so you’ll need to position the context of the questions. For example, “Mom, we don’t need to know what’s in the will, just where it is” or “Dad, we don’t need to know how much insurance, just where it’s kept.”
The point is to know what documents to look for, and where to find them, in an emergency. Being aware of a parent’s financial situation may also help adult children to ensure dividends and interest are received, insurance is paid on time, and pensions are administered appropriately, and so on, as their parents get older and less focused on their financial details.
Perhaps the biggest concern for children who have yet to have this conversation with their aging parents is how best to approach them. A practical and non-confrontational tact is best. Consider using another example from the family where a child had to step in with an adult parent, such as, “Remember when Aunty Mimi had to go into a home and Suzie had no idea where anything was?” Alternatively, adult children could use an article, such as this one, or others from a local magazine or newspaper to start the conversation.
Adult children should be prepared to suggest this discussion several times before they’re taken up on their offer. And they may have to take several small steps toward full disclosure. If parents brush their adult children off as alarmist, they could say: “If anything happens to you, the burden of managing your health care and your money will probably end up being mine (and my siblings). I want to be able to do what’s right for you and make you as comfortable as possible. Consider it a gift to me to minimize my distress by being open about your situation now.”
Parents who are reluctant to talk to their children may be willing to speak with a professional. The important thing is to get the details on the table since, without those, adult children could spend months tracking down even the simplest information.
Adult children must be cautious that once they’ve got their hands on the goods, they may find holes and patches they hadn’t bargained for: unpaid bills, unexecuted wills or powers of attorney, or unfiled tax returns. They shouldn’t panic. Again, a financial expert can step in to help create a list of all the things that must be remedied.
If it becomes necessary for a child to take over the administration of his or her parents’ finances, it’s important to respect their rights and wishes. Reinforce that to be successful, children should give parents as much control as possible, keep their parents’ money separate from their own, and involve parents as much as they can.
Adult children also must be counseled to not judge the choices their parents make. An elderly mother who refuses to change her asset mix because she perceives it to be disloyal to her husband’s memory isn’t being difficult. She’ll need clear explanations and lots of patience before she’ll come around. Also, adult children may have very different goals, time horizons, and investment risk profiles from that of their parents. No matter how successful adult children have been, they do not have the right to impose their money management styles on their parents.
Maintaining the cash flow
Cash flow will become an issue for adult children when their parents can no longer handle routine transactions themselves. The warning signs include past due notices, cheques that remain unopened, and a general lack of awareness of what is going on financially. Issues that will have to be dealt with range from who will pay the bills, to how long the money will last.
Children should set up automatic debits for routine bill payments to eliminate the worry of bills going unpaid and services being disrupted. Setting up automatic deposits for dividend, pension, and other cheques will ensure that money is credited quickly to accounts. Some children may choose to set up joint accounts with their parents, adding telephone-banking privileges so they can do periodic quick checks on accounts.
If clients are trending to the joint-account approach, remind them of the deposit insurance consequences. If a parent adds the adult child’s name to a joint account at a bank where that child already has accounts, any amount over the allowable $60,000 per person for joint accounts may not be covered by Canada Deposit Insurance Corporation (CDIC) insurance. Where CDIC limits are an issue (for the parent, if not for the adult child), the adult child should bank at a financial institution that is different from the one that holds the parent’s account.
Protecting their assets
Providing children with projections to show how long their parent’s assets will last based on the current rate of consumption will either ease their minds, or allow them to prepare for the day when they have to take over all financial responsibility. Advisors can provide information or expert resources on issues such as long-term care insurance, annuities or the trials of care giving.
For elderly parents for whom a home is their primary assets, it can be frustrating to be house rich and cash flow poor. Children may wish to look into a reverse mortgage as an alternative to provide their parents with the extra money they need to take care of health bills, do modifications to their home to make it more comfortable, or to add a cushion to their cash flow.
For parents who can no longer live independently, choices will have to be made. Will they come home to live with their children? Will they seek in-home help? Will they choose a nursing home? Each of these choices has financial and emotional ramifications that need to be discussed.
Children must be aware that there has been a steady growth in the number of financial scams targeting the elderly – people who may be lonely and looking for companionship. These elderly people become the ideal prospects for telemarketing fraud, trumped-up home repairs, and other cons. Should a client’s parent fall prey, the adult child should not be too critical. Once the person(s) has been reported to the authorities, adult children should then calmly explain that the friendly person supposedly offering great deals might be a crook.
Depending on the health of their parents, children may face considerable medical expenses. Children should check with their doctor before purchasing items for a dependent relative, since many items can be deducted if prescribed by a medical practitioner. And remind parents to keep their receipts for everything so that, should they need to prove a claim, they’ll have the paperwork to back it up.
Credits and deductions
While medical expenses covered by a medical plan may not be included in the medical expense claim, the health insurance premiums will qualify as medical expenses. Children (or their parents, as the case may be) should also file for all the allowable credits and deductions available – from the equivalent-to-spouse credit available to a single child who supports a parent, to attendant care costs, to the disability tax credit, which can be transferred to the adult child if not used by the parent.
Wills and powers of attorney
If parents haven’t already done so, adult children should strongly encourage their elderly parents to execute a will and powers of attorney. Since even beginning this discussion means facing difficult issues such as death or incapacitation, children may be unwilling to raise the subject. But there is a very real danger in not having these documents completed. Parents who are suddenly incapacitated, and have not executed powers of attorney, will have lost their ability to name trusted representatives to be in control of their affairs. And since there’s a time lag before an attorney is appointed by the public trustee, during that time, no one has control or authority over things like paying bills or the mortgage, filing tax returns, and the like.
Even if your children have joint ownership of a home with an elderly parent, he or she won’t be able to make changes until someone is appointed to represent the parent’s interest.
The issue of dealing with aging parents is going to become even more important as our society continues to age. Currently, the 85 and over population (sometimes referred to as the frail elderly) represents about 1.35 per cent of the total population and approximately 10 per cent of the population 65 and older. Given how quickly this demographic has been growing, it’s only a matter of time before care of the elderly becomes an issue for adult children.