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Assisting Aging Parents With Financial Matters

Tue, 27 Sep 2016

Baird's Tim Steffen thinks early and open communication is key to broaching the topic.

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Video Transcript

Christine Benz: Hi, I'm Christine Benz from Morningstar.com. Many adult children actively assist their aging parents with their financial matters. Joining me to share some pointers on this important topic is Tim Steffen, he's director of financial planning for Baird.

Tim, thank you so much for being here.

Tim Steffen: Thanks, Christine.

Benz: Such an important topic. I think a lot of us in the trenches have war stories on this topic. But let's talk about some of the tips that you laid out in this great piece that you wrote about how to assist your parents throughout their lives. You say the first step is to start the conversation, get the dialogue going, to discuss where your parents stand, ideally pre-emptively, before you start to see some issues.

Steffen: Sure. The sooner you can start these conversations, easier they are. It's not always easy to just go to your parents and say tell me about this, tell me about that, tell me about your finances and your insurance plan, your healthcare plans. It can be a tough conversation to frame. It's easier to do when you are a little bit younger and they are younger. And maybe just set it up by saying, I am thinking about some of these things for myself. Tell me what you did, mom and dad. And maybe that will either get them to open up about what they have done, or perhaps even realize that, maybe we haven't done some of this, and if my kids are thinking about it I certainly should be. So that can be a nice way to get the conversation started even if they haven't done any planning.

Benz: So maybe a question about, well my spouse and I are starting to think about estate planning, for example. What did you do on this front?

Steffen: Who did you go to, what kind of things have you done, what's your plan. So we can maybe learn some things from you, and that can be a nice way to get the ball rolling on some things.

Benz: OK. So once you've gone through that icebreaker stage and maybe had some initial dialogue. You say that it's also important to sit down with your parents and kind of find out what they have, document their assets, get some basic information about what their financial assets look like.

Steffen: You can do that in conversations, but sometimes if you do question it this day and then come back for a holiday and you talk about it little more and then at Christmas a little more and then at a birthday little more--it's hard to get a cumulative answer on all of that, and it's easy to miss some things. We encourage sitting down with, like a personal inventory or what we call personal information guide where you can sit down and it's a booklet that they fill out and ask for all that pertinent information. And it may take them some time to do it, but at least then it's all in one place. And it's not just the account information. You want to know where are the accounts and numbers and values if they are willing to share that, and that maybe tough. But it goes beyond that, it's things like who are your doctors, who's your insurance agent, who's your accountant or your attorney, who's the veterinarian that you use. Who does things around the house for you that we should get to know? There is a lot of things that we try to gather in that personal information guide. In this day and age, it's not just phone numbers and addresses, it's emails, it's websites and logins and passwords and all of that type of thing too. So it's a pretty comprehensive inventory we try to get from the parents.

Benz: And you noted, and I thought this was a good point, the tax returns, the parents' tax return, taking a look at that can be your guide to getting up to speed on what their financial accounts look like.

Steffen: There is a lot of great information that can be found on a tax return. So it's the accounts, it's who they give donations that might be an important thing to understand for their plans later on. Where they have mortgages or other loans at in addition to the investment account. So that's an important piece of the overall plan--that and the estate documents are the two big ones.

Benz: OK. I want to circle back to estate planning documents. But before we get there you also point out that in this stage it can be great for adult children to start making some contact with the financial professionals who are in their parents' lives.

Steffen: Yeah, absolutely. Most financial professionals are going to want to get to know you because they want to maintain that relationship for the next generation. But it's good for you to know who they are as well. And the parents may have established a good relationship with that person, they'd like you to continue to work with them. So you want to get to know them ahead of time and find out if they are going to be good fit for you when the time comes. And make sure then that you can be in the loop on any changes that may be happening maybe you start working to get have your parents put your names on accounts as a TOD designation maybe or even a beneficiary …

Benz: Transfer on death.

Steffen: Transfer on death, right. Or a beneficiary designation or powers of attorney or something like that. So that they've got all that on file and they get to know who you are.

Benz: OK. So let's talk about those basic estate planning documents. Because this is also a good stage to sort of take inventory of where your parents stand related to estate planning issues.

Steffen: The big one is--you've got the standard will, but you want to look at things like trust documents. And then if they have set up trust documents make sure that the accounts that they have or other assets that may have are actually titled in a name of that trust. Some people go to the big effort of creating an elaborate estate plan and then never actually make the other implementation steps that need to be done to work with that. So reviewing all the appropriate titling of accounts and beneficiary designations make sure those are still current, especially if there's been birth, death, marriage, divorce any of those types things that can really change your scenario. So you want to make sure those are all current as well.

Benz: So those steps are all part of the initial to-do list. But your paper goes on to discuss some of the progression of parents aging, and you say that on an ongoing basis it's really important for adult children to assess how their parents are doing and also assess whether there may be a need for some outside care.

Steffen: This is an important stage where siblings are communicating among themselves and with the parents. You want to make sure everybody is on the same page as what kind of care mom and dad want and where it's going to come from and that the siblings are all in the same page with that type of care as well. So the open communication among everybody really makes the whole process a lot simpler.

Benz: So some of the key questions to ask parents, let's talk about those. If you are trying to gauge what their ideal living situation will be throughout their lives. How should you approach that?

Steffen: The biggest thing we see with a lot of aging parents is, what to do with the home. Are they going to stay in the home, how long are they going to stay? If they are not going to stay, is it going to be sold, is there maybe a sibling that wants to buy the home. Are they going to rent it or something? If there is a vacation home that can be a tricky one too, the cottage up north type thing. So really honing in on that, and that's a tough one, because there are both the financial aspects of what do you do with this residence that maybe has a mortgage on it still, maybe doesn't, and then there is the whole emotional side of it. Where maybe this is the home that mom and dad grew up in, its where they raised all the kids. While it may be easy for you as the child to say well, mom and dad its time to move out of the home, its going to be a lot harder for them to do it in some cases. In some cases, they are saying I am ready to get off from under this and the care and upkeep and expense, but I find that more to be the exception then the rule.

Benz: Another thing that you say that adult children should have in mind at this life stage is start thinking about how you can help your aging parents simplify their financial plans. Let's talk about that.

Steffen: So a lot of people think that diversification means just opening a lot of accounts, or you have got a generation that was really focused on or experienced bank failures back in the day and so they are concerned about having too much money in one location. That may or may not be as big a risk in some cases now, so consolidating accounts, there can be lot of value in that and really simplifying your life. I have seen it personally where upon a parent's death the kids are going through the records just finding account after account. Again that's where the tax return can come in handy. But not everything is obvious from the return either. So consolidating accounts, getting the right names on accounts, closing accounts that aren't needed anymore, and not just investment accounts, but things like credit card accounts or online subscriptions or any other subscriptions. If mom and dad are in a nursing home right now and they don't need a newspaper subscription, cancel the newspaper or cancel the cable or some of those other things that maybe they don't need anymore. So start winding things down.

Benz: One thing I encounter a lot is that some of these very avid investors have in my view maybe overly hands-on sorts of plans, like they are managing lot of individual stock holdings. Would that be the kind of thing that you would urge people to kind of step away from as they age, think about mutual funds.

Steffen: Again its another example, we probably both have seen it, where you've got somebody who is always very actively involved in their finance and they just don't want to let go. Again you can understand where they are coming from. But that's one of those things that over time they--you have to kind of learn to step away from. It's a tough conversation to have but it's one that does have to be had at some point.

Benz: So let's talk about some very late in life issues, some things that adult children should be sure to keep abreast of. So say that you are the child of a parent who has experienced some serious decline. What sorts of things should you have in mind at that life stage?

Steffen: Again healthcare is going to be the big one, you have healthcare providers lined up, whether it's in-home healthcare or nursing home outside care. And understand is this going to be a facility for example that can handle the stages the parents maybe going through, from assisted care to full care to end of life care. So make sure you've got a facility where you can work through that progression, because you don't want to be moving mom and dad around a lot at that age if you don't have to. From a financial standpoint again make sure the accounts are titled properly. One thing we encourage people to kind of stay away from is the--mom or dad puts son or daughter on the account with them.

Benz: Let's talk about why that's maybe not such a good idea.

Steffen: We understand why people want to do it because of the convenience, if something happens to mom or dad then that child is on the account they can go get the assets and manage it very easily. But some of the risks with that would be from a liability standpoint. Mom or dad puts son or daughter on the account and son or daughter incurs any kind of liability or bankruptcy or any kind of creditor issue, mom or dad's assets can be at risk in that case. So that can be a problem. You also run into some estate and equality issues. So there is maybe multiple siblings and mom or dad put one child on the account. But when that parent passes all those assets go to that child. They may have every intent to split them with their siblings but that can create some tax issues for that child too. So using things like trusts or beneficiary designations as opposed to joint ownership on an account can make things little smoother from that standpoint. And there are ways you can title things, so that individual, that child see the accounts have the authority to talk to an advisor without having true ownership over the account.

Benz: Could the child write checks if needed?

Steffen: In some cases, if the proper designations are on there, power of attorneys those types of things, yes.

Benz: So another thing that you mentioned in case of some sort of incapacitation on the part of the parents is this idea of guardianship. When is that something to think about? It seems like something that most people would really want to resist unless absolutely necessary.

Steffen: Most people think about it when it's too late, and they haven't been able to plan for it. So especially when you have got multiple siblings, you want to make sure they have all--you and your brothers and sisters have all gotten together and talked about what is the right kind of care and is one of us going to be that guardian for mom or dad and help them through this, or do we need to hire somebody out, and how do we make sure it's equitable among the siblings if that becomes an issue. And maybe mom or dad have some plans in place already or their thoughts and how they'd like to handle that as well. So again open and early communication makes that the easiest way to address that.

Benz: One last question I want to hit on is this idea of powers of attorney and figuring out--so say you have multiple siblings in a family or other relatives--how do you figure out the appropriate person to serve as power of attorney for healthcare matters as well as financial matters.

Steffen: Probably the best answer is to use somebody who's a lot younger than the individual, than the parent. So the parent may want to put their brother or sister on. That doesn't do a lot of good if they are at the same age as the parent and maybe going through the same issues that the parent is. So you want to go to somebody who's a little bit younger, somebody who knows you well, so again a child, it could be an outside professional like your attorney or your accountant or somebody like that. But that can create some conflicts of interest at times if its not handled properly. So we encourage identifying a child or maybe a couple of children who are maybe the more financially astute. I have seen some families where they have multiple children and some handle the financial side of it, and others handle the medical side of it. Because maybe they live closer to the parent. Whereas those who are further away handle more of the financial issues because you don't have to be right there with the parent. So a little bit of divide and conquer on that, but again making sure everybody is on the same page so there is not questioning later on, why did you do this and why did you do that for caring for mom and dad.

Benz: OK, Tim, such an important topic. Thank you so much for being here to discuss these things with us.

Steffen: Thanks.

Benz: Thanks for watching. I'm Christine Benz from Morningstar.com 

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