By Maria Di Mento
Whether you're 5 or 50, you're always a child in your parents' eyes. So it isn't surprising that nearly 50% of senior citizens told a recent survey that they've never had a serious discussion about their financial situation with their adult children.Even more sobering, only about one-third of adult children were confident that their parents' finances in retirement were in solid shape, according to the study, by Golden Gateway Financial and Crestwood Associates. And considering what's been happening in the stock market and the economy over the past few months, the situation has probably gotten worse since the survey was conducted. Avoiding "the talk" could prove disastrous for both you and your parents, so it's important to have a frank discussion before they experience illness or frailty.
How to broach the subject without coming across as a circling vulture? Be respectful, and be circumspect. Don't demand financial information or tell your parents what to do. Instead, ask them how you can be of help. Cite a newspaper article or television episode on the subject, advises Neal Cutler, who directs the Center on Aging at the Motion Picture & Television Fund. Or, if a neighbor or family friend was financially unprepared for retirement, use that as the springboard to a conversation. (See our list of important documents to review.)
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A case study
Val Montefu, a 53-year-old real estate agent in Rancho Santa Margarita, Cal., was fortunate. Two years ago, Val's father asked her to do a financial checkup for him and her mother. At 88, he was beginning to experience declining health, and he wanted to make sure that he and his wife would have enough money. He was also worried about what might happen to Val's mother after his death. "He kept asking me, 'Are you sure there's enough? Are you sure Mom's going to be okay?' " says Val.
Val's mother kept all of the family's financial records in one place -- something estate planners recommend that you do before making any decisions-so it was easy for Val and her parents to sift through them. Her mother and father had paid off their mortgage 30 years before, and their home was worth about $700,000. They also had substantial savings. Val typed up a list of their assets, insurance policies and bank accounts (they had money stashed in six different banks, a common practice among the Depression-era generation) and gave the list to her parents to review. Then the family met with a lawyer to set up a living trust.
In addition to a will, estate planners often recommend that older individuals draw up a living trust because it provides a central location for holding assets. Living trusts are a good option for estates that are complex or that top $1 million, says Carleton Morrison Jr., an estate-planning attorney in Bonsall, Cal. In some cases, they're also a way to skirt the time and expense of going through probate court, which you may have to do if your assets are distributed via a will.
Trust laws vary from state to state. An estate-planning lawyer can help you and your parents design a trust and avoid dubious living-trust products that are sometimes sold to seniors through "informational" seminars or peddled door-to-door.
Companies that operate such scams use a variety of high-pressure and often deceptive sales tactics. For instance, they'll urge elderly consumers to liquidate their assets and buy an annuity that carries high sales charges while offering low returns. Or they'll sell seniors what they claim are tailor-made trusts, when in reality all customers receive identical documents (for more information, see the Federal Trade Commission's publication, Living Trust Offers: How to Make Sure They're Trust-Worthy).
Regardless of whether your parents have a living trust, they should draft a power of attorney giving you or someone else authority to manage their affairs if they should become incapacitated. And they should prepare health-care directives, such as a durable power of attorney for health care and a living will, which specifies the treatments they want if they cannot express their wishes.
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Where to live?
When Val's father died last May, her mother, now 85, was financially secure. But she felt slightly unmoored after her husband's death, and she had another set of financial decisions to make.
First and foremost, the house the couple had lived in for 50 years suddenly felt too empty, too silent and too cavernous for one person. Val's mother debated whether she should sell the house or rent it out to produce an additional stream of income. With Val's help, she sought the advice of a financial planner and weighed those options. Ultimately, however, she didn't want to sell in a buyer's market, nor did she relish the prospect of renting her home to strangers. For now, she has decided to stay put.
Housing is a key concern when talking to your parents about their finances. Cutler calls it the "hub" of all financial issues because how much they spend on housing dictates how much will be left over for everything else.
Do your parents want to continue living in their own home, downsize to someplace smaller or move to a continuing-care retirement community? A CCRC is an attractive alternative for people who are completely independent at the moment but may need more assistance down the line. They'll be freed from such homeowner hassles as yardwork and house repairs, and if their health declines, they can shift into assisted-living care without having to move or change their surroundings.
The downside is that CCRCs are expensive. Depending on where you live, you may have to come up with an upfront fee that's anywhere from $20,000 to $400,000. Additional monthly payments usually range from $200 to $2,500. For more information on CCRCs, go to AARP or to the Commission on Accreditation of Rehabilitation Facilities' Web site.
While you're considering housing options, keep transportation in mind, says Sandra Timmermann, a gerontologist and executive director of the MetLife Mature Market Institute. Easy access to transportation services is one way people can preserve their independence and their quality of life.
What if your parents can't afford a CCRC? Worse yet, what if they don't have enough money to last through retirement? Don't panic, advises Timmermann, because they have other options. Your parents could consider a reverse mortgage, which allows people 62 and older to convert their home equity into a steady stream of income while they continue to stay in the house. But these arrangements are complicated, so expert advice can be helpful (go to the National Reverse Mortgage Lenders Association's Web site to locate a lender in you area). (See New Rules on Reverse Mortgages.)
If a reverse mortgage doesn't fit your parents' circumstances, or if your parents simply don't have enough assets, you can find help through the National Association of Professional Geriatric Care Managers. The organization's members are tuned in to local financial and health resources and can help your parents devise and monitor an income plan.
Another option is the National Council on Aging's BenefitsCheckUp tool. Within minutes of completing an online questionnaire, your parents can receive a detailed report listing benefits for which they are likely to qualify: Medicare and Medicaid, tax-relief programs, and financial help with everything from hearing aids and meals to housing and long-term care.
Dealing with dementia
Watching your parents slow down is one thing. Seeing them develop a progressive disease such as dementia or Alzheimer's is quite another. Developing one of those diseases is not inevitable, of course. And you sometimes have a window of ten to 15 years before the disease has a critical impact on a person's ability to make decisions.
But that window will eventually close, so life will be a lot easier for both of you if you initiate the discussion while your parents can still participate in making financial decisions and choosing an agent to act on their behalf. "It's much better to handle that type of conversation with care and serenity rather than rushing in with a fire hose," says Sally Hurme, an elder-law attorney and senior project manager with AARP's financial-security division (to find an elder-law specialist in your area, contact the National Academy of Elder Law Attorneys).
If a parent has been diagnosed with later-stage Alzheimer's, he or she should not sign a conventional power of attorney. The best option is to have your parents sign a durable power of attorney while at least one of them is still mentally competent. They can state in the document that they want their wishes to remain in effect after they become incapacitated.
If neither of your parents is capable of signing a durable power of attorney, a court could appoint you or someone you trust as a guardian to make financial and health decisions for them. But that's a lengthy and emotionally painful process that should be done only as an absolute last resort, if at all, says Hurme.
Fortunately, there are alternatives to guardianship, in the form of family-consent and health-care surrogate laws, which let families handle their parents' affairs without complicated court procedures. You could also ask the Social Security Administration to act as a representative payee to manage your parents' Social Security checks. Although 5.2 million Americans suffer from Alzheimer's, keep in mind that it's not a normal part of aging. Frailty, arthritis and diminished sight and hearing are more likely to scuttle your parents' day-to-day activities.
Val's mother has macular degeneration. Because her eyesight isn't as sharp as it once was, it's hard for her to pay her own bills. "But she's very much in control of her finances," says Val. Every few weeks, her mother brings all of her bills to Val. "She goes through each one with a magnifying glass and hands me the ones she wants me to pay," says Val. "I mark each invoice with the amount and the date paid, then give everything back to her to keep in her files at home."
Val says the toughest thing about helping her parents get their finances and advance plans in order was the reminder that they wouldn't be around forever. But "I was happy to be able to help them through it," she says, "and now I want to make sure my affairs are in order way before I'm 88."
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