Domenica Lurvey
Witnessing your parents age will come with ups and downs. When it comes to the financial part of caring for aging parents, it's a chance to plan ahead and be ready. With effective wealth management, you can have the means to support them in their later years while keeping your financial future secure.
AGING PARENTS AND WEALTH MANAGEMENT: 4 QUESTIONS TO CONSIDER
- Do your aging parents have good financial plans in place already?
How you approach the management of your parents' future needs largely depends on their current financial plans. If they have significant assets and long-term care insurance and work with reputable financial advisors, they may only need very little financial support from you. On the other hand, naturally, you may feel a much more pressing sense of obligation if you know your parents have minimal savings and assets and limited financial literacy.
Because many families don't have frank conversations about money, adult children may need clarification about their parents' financial situation. Start some conversations about how prepared they are for their future expenses. These discussions may not feel comfortable, but they're necessary. Even for parents who were once skilled at wealth management, challenges can arise as they move into their 70s and 80s. For example, older folks are vulnerable to financial scams that could cost them their savings. Sometimes, the spouse who handled the money passes first, and the surviving spouse makes mistakes like overspending or neglecting to renew insurance. Or, they might not have viable plans to keep them from outliving their money.
Find out things like how their monthly expenses compare to their monthly income. Do they have any debts or outstanding tax issues? What insurance coverage do they have? Have they made any significant or recurring payments to questionable people or companies? What's the status of any assets they own? Have they put money aside for funeral expenses?
Depending on family dynamics, involving wealth management advisors in those conversations could be useful. Some aging parents are more open to advice from an impartial financial professional than their own child. If anything is amiss in the parents' financial plans, financial advisors can help the family strategize about the next best steps.
- What financial support do you anticipate providing your aging parents in the coming years?
This is a complicated question because so much is unknown. You can't predict how long your parents will live, what kind of medical bills and other expenses they'll incur in the future, or how your financial situation will change. If you have siblings who can contribute to your parents' care, that creates some unpredictability, too. (What if you plan to split the cost of Mom's nursing home with your brother, then he loses his job and can't cover his half?)
It's never too early to start strategizing how aging parents may impact your financial plans. Consider questions like, Are there any government assistance options your parents are eligible for that could help defray costs? If they needed immediate help, how much would you feel comfortable budgeting for their care each month? Are there siblings or other family members who plan to contribute? Are you willing, or could you move your parents into your home at some point to cut down on living expenses? If you share finances with a partner, do they also have aging parents who may need support in the coming years?
As you think about your parents' direct expenses (like nursing home fees and medical bills), bear in mind the additional costs you might incur as you care for aging parents. You may need to travel more often to see them, for example. If your parents can't afford to cover expenses such as groceries, personal care items, house cleaning, transportation and other things that will help them live independently, those might be costs you take on too. Spending more time actively involved in their care might even mean cutting back at work and bringing in less income than you anticipated. All those costs add up.
- If you elect to provide financial support to aging parents, what's the best way to do it from a wealth management perspective?
Once you start providing financial support, you may feel compelled to spend thousands of dollars a year on your parents' care for the rest of their lives. It's essential to be strategic about reallocating that money from your existing financial plans without destroying your retirement savings or taking a big tax hit.
Discuss the merits and drawbacks of various strategies with your advisors. A lot of factors are at play here. Depending on your circumstances, selling a struggling investment this year and using the proceeds to fund a trust with your parents as beneficiaries could be tax-advantaged. What if you're still decades away from retirement—should you pull back on contributions to your IRAs? Trim some luxuries from your monthly budget to free up more cash. Buy an annuity or transfer money to your parents' accounts monthly?
- Have you and your parents done the estate planning tasks that will help your family maintain wealth?
Estate planning is an essential component of good wealth management at any age. Both you and your parents need to be sure that you've put appropriate estate plans in place. If you were to die unexpectedly before your parents, would your assets pass to them in a tax-advantaged way? Who would be in charge of managing their finances? What if your parents have significant assets left when they die; are there plans to pass them to younger family members with minimal taxes? Talk through those scenarios with your advisors to protect your entire family.
PROTECT YOUR FAMILY WITH EFFECTIVE WEALTH MANAGEMENT
Sachetta's wealth management advisors are here to help you plan for your family's future. Let's talk about ways to maximize your wealth, provide for your aging parents, protect your financial future, and share wealth with the next generation. Contact us today!
In this article, Domenica Lurvey addresses the financial aspects of caring for aging parents, offering guidance on evaluating your current financial plans, anticipating future support needs, and strategic wealth management. She provides perspective on balancing your financial responsibilities while ensuring your parents' well-being and securing their financial future.