Ensuring the financial well-being of your parents can be a tough job -- particularly since it inevitably raises the specter of dementia, failing physical health, or even death. But as your parents (and you!) age, it becomes increasingly important to broach the difficult subject of financial planning.
"In order to plan your own finances efficiently, you need to know about your parents' estate and its disposition," says Stewart Welch III, a financial planner and author of JK Lasser's New Rules for Estate and Tax Planning (John Wiley & Sons, 2001). "You need to know: Are they going to leave you money, or will you have to support them? Will they be able to cover high medical bills, or will you have to step in?"
But that presupposes that your parents have considered these questions themselves. Clearly, they should have set up an estate plan years ago (even if only a very simple one), but many people put this crucial step off indefinitely. It may be easiest to broach this subject by using yourself as an example. Tell your parents that you're working on your own retirement and estate plan, and encourage them to talk about theirs -- specifically, whether they've updated or even created theirs, where all relevant documents are kept, which attorney and/or financial planner assisted them, who they named as executor, and any other relevant questions.
"The main problem is people's unwillingness to talk," says Harold Evensky, a financial planner in Coral Gables, Florida, whose clients are primarily nearing or post-retirement. "There's no specific trigger to talk about these issues, but maybe you can use an event like retirement or the recovery from an illness to start."
In addition to establishing an estate plan, there are two other primary issues to address, both of which hinge on decision-making procedures. "The biggest question is that of responsibility," Evensky says. If his clients seem unwilling to address those issues, Evensky can be quite blunt. "I ask them, 'Do you really want your kids to take care of you?' That usually wakes them up."
Independence is exactly what your parents do not want to relinquish -- and that's often what the crucial step of setting up a power of attorney implies. Happily, though, you don't need to ask them to sign over all decision-making power to you as soon as they become a little forgetful.
If your parents balk at giving power of attorney to you or even to a professional, there are other options. The power of attorney, which gives someone the ability (and sometimes responsibility) of executing financial transactions on another's behalf, is a customizable document. A springing power of attorney, for instance, won't become effective until a certain event is triggered. The event can be anything -- a debilitating illness, the onset of dementia, or death of a spouse. In addition, the "power" can be limited by anything, such as a spending cap or a time period.
Similar to the financial power of attorney, your parents need a health care power of attorney. That means more than just a living will, which really just concerns life support issues. Rather, a health care power of attorney centers on incapacitation, or any medical event that could hinder one's ability to make a decision. These powers can be set up as springing or limited, just as a financial power of attorney.
More mundane matters -- such as budgeting and bill paying -- are nearly impossible for parents and children to discuss, most financial planners say. After all, having to explain to your children how much you're spending and why is the ultimate encroachment on financial freedom. But if you get your parents to talk about the larger issues with a financial adviser, they can also discuss the daily problems as well. The planner can also serve as an intermediary to facilitate inter-generational discussions. Welch, for instance, sets up a "family council" for his clients, in which a variety of wealth-management issues are discussed.
An independent, professional third party is almost always the best route for reticent parents. "If they don't have a financial planner, ask them to sit down with their accountant, attorney, insurance agent, anyone they trust," Welch says. "Get someone involved that will be on their 'side.' If you drag them to your own financial planner, it could seem like two against one."