By Nora Dunn
It’s no secret that speaking about money and financial matters in general can be a topic not many like to broach. And with friends and acquaintances, it’s understandable that you may wish to keep a few cards close to your chest.
With your parents (and other family members) though, not speaking about money can be detrimental in more ways than one. Because life happens when you’re busy making plans, and some of the most important decisions might need to be made when you feel under pressure and unprepared.
It can be difficult to contemplate, but the fact is that even though your parents may be in good health right now, the potential for a health crisis to occur only increases with age. Planning ahead won't prevent the situation, but it can help you be prepared to make superior decisions at a time when emotions could cloud your judgement.
By developing a strong financial plan now, as well as setting in place legal mechanisms for the responsible administration of their finances, your parents can ensure they'll get the needed and pricey medical, home or institutional care without eroding overall family finances, especially if they should become unable to make their own decisions.
I had a great uncle (think “eccentric rich uncle”) who was getting on in age and suffering mentally and physically with dementia. He also didn’t have a will or power of attorney. When he became ill and institutionalized, the say took over his finances and property, and even though they made the ideal decisions they could on his behalf, it was all according to the book and they had no leeway for recommendations from his family and friends who knew of his wishes. The entire situation could have been easily averted if he’d his finances in order, proper legal documentation, and had discussed it all with his family. As it happened, he died in a place he hated, and the few bequest wishes he had were never respected.
Although the issue of finances might be awkward, it is in everyone's interests to ensure that your parents are properly taken care of. If you’re not part of a family who openly communicates about finances, try raising the topic casually, and perhaps by raising small issues first. This will help both you and your parents feel more at ease with some of the trickier conversations that might eventually have to happen.
You may even discover your parents have been waiting for you to take the first step.
Once you are comfortable getting down to brass tacks, it would be ideal to assemble a complete picture of your parents' financial situation:
Income
Where do your parents derive their income, and do any conditions apply? For example, company pension plans might have strict limits on the amount and duration of income to a surviving spouse.
Assets
Get a picture of their assets (and liabilities for that matter). Locations of necessary paperwork, accounts, and safety deposit boxes is also key.
Many assets also grant for beneficiary designations within the account setup; ensure that these beneficiary designations are consistent with their wishes.
Expenses
Identify all your parents' current expenses and determine whether their income (along with any government aid) will be adequate to cover projected home or personal care costs.
Insurance
Do your parents have extended health care plans? Should they consider critical illness or long term care insurance? Have they properly provided for each other with life insurance (if needed)?
Think about estate plans:
Will
Without a will, there is an increased potential for litigation and unexpected family quarrels, and the very real possibility that their wishes won't be properly respected. Ask your parents if they have up-to-date wills. Leaving things until “later” or ultimately “the system” will cause untold amounts of grief in the end. I have seen improperly drafted or vague wills take literally decades to resolve; meanwhile all assets are held by custodians and nothing is distributed. You’re not trying to swoop in for the loot by discussing wills with your parents; you are attempting to make sure their wishes are carried out. If you don’t know what they meant in drafting “xyz clause”, then nobody will.
Executor
Have they designated a Personal Representative (also referred to as an executor or liquidator) in their wills? This is the person (or trust company) who is responsible for winding up their affairs and distributing assets and bequests. And if the executor is you (all the more reason to be having this conversation –many executors don’t even know they were so designated until it’s too late and they’re in the thick of it), make sure you know all the logistics like where exactly their will, insurance policies, legal documents, and financial papers are located. It is also worth asking who their contingent executor is; it is always prudent in making wills to designate a contingent executor, and if that person is you, it is still a grave responsibility not to be taken lightly.
Enduring power of attorney
This gives a designated person the power to make financial decisions on each parent's behalf, if that parent becomes incapacitated. Most couples designate each other as their power of attorney, with a child or other family member as their contingent power of attorney. If you’re the primary or contingent power of attorney, there’s a lot that goes unsaid in the legal wording of this document. Make sure you know exactly what your parents’ wishes are with regards to their preferences for personal care when they’re incapacitated, as well as maintaining their financial affairs. As power of attorney, you’ll have carte blanche with their affairs and you need to know how to deal the ins and outs in a manner consistent with their needs and desires.
Living will
(Sometimes called a health directive) - provides explicit directions about the personal and medical care to be provided for each parent should they become incapacitated. It is also referred to as a Power of Attorney for Personal Care, and should be addressed with the same degree of gravity as the Enduring Power of Attorney.
Talking about all this stuff doesn’t have to be the soul sucking depressing experience that it might seem to be at the onset or on paper. Sure – you have to discuss a number of “what if” scenarios that we all would rather not envision, but the peace of mind you and your parents may feel by virtue of knowledge and understanding is not to be underestimated. Preparing for the unknown gets us one big step closer to understanding it.
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