A Step-By-Step Plan To Protect
Their Assets, Limit Taxes, and
Ensure Their Wishes Are Fulfilled
The Complete Guide To Managing Your Parents’ Finances When They Cannot: A Step-By-Step Plan To Protect Their Assets, Limit Taxes, and Ensure Their Wishes are Fulfilled
Copyright © 2010 by Atlantic Publishing Group, Inc.
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Library of Congress Cataloging-in-Publication Data
Swan, W. A., 1966-
The complete guide to managing your parents’ finances when they cannot: a step-by-step plan to protect their assets, limit taxes, and ensure their wishes are fulfilled / by W.A. Swan.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-1-60138-313-6 (alk. paper)
ISBN-10: 1-60138-313-4 (alk. paper)
1. Aging parents--Finance, Personal. 2. Retirement income. I. Title.
HG179.S894 2009
332.0240085--dc22
2009014868
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To my mother, Elizabeth Swan, who suffered the slow and frustrating decline into dementia over the last few years of her life, which gave me first-hand experience to many lessons of this book.
FOREWORD
CHAPTER 1: THINKING ABOUT YOUR PARENTS’ FINANCES
The Road Ahead
The Total Caregiver Role
Possible Issues
Your Parents’ Benefits
Your Benefits
Managing Their Money – the Basics
CHAPTER 2: DISCUSSING THE MONEY ISSUES WITH YOUR PARENTS
Getting Ahead of the Money Problems
When Do You Need to Intervene?
How Involved Should You Get?
Concerning Stepparents and Partners
CHAPTER 3: THE STRESS OF FINANCIAL CAREGIVING
Long-Distance Caregiving
The Risk of Burnout and How to Avoid It
Depression
Stress Control
When to Call a Professional
Hiring a Professional
CHAPTER 4: GETTING AN ACCURATE VIEW OF PARENTAL FINANCES
Gathering the Information
Calculating Assets
Inventory of Personal Property
Calculating the Liabilities
Putting it All Together
CHAPTER 5: TAKING OVER — THE FINANCIAL AND LEGAL PROCEDURES
Managing Your Parents’ Money
The Legal Steps Needed
Managing Expenses
A Helping Hand
Joint Checking Accounts
Power of Attorney
Revocable Trust Accounts
Irrevocable Trust Accounts
Pure Trusts and Other Scams
Guardianships and Conservatorships
Privacy Protections and the Drawbacks
CHAPTER 6: HELPING YOUR PARENTS LIVE THE WAY THEY WANT
Dreams and Plans for Your Parents’ Remaining Years
Budgeting — Day-to-Day Living, Food, Utilities, and Personal Needs
What to do When There is Not Enough
About the Investments and Retirement Income
Investments with a Fixed Income
Taking the Money Out of Retirement
CHAPTER 7: THINKING ABOUT WHERE YOUR PARENTS WILL LIVE
Living Safely at Home
Home Equity Loans
Reverse Mortgages
Refinancing the Mortgage
Renting Out the Homestead
Selling in a Bad Market
When Parents Have to Move
Parents Who Plan on a New Home
Renting and Retirement
Mobile Homes
Moving in With You
Alternative Housing
Just Short of a Nursing Home
CHAPTER 8: YOUR PARENTS’ MEDICAL BILLS
Power of Attorney and Health Care
Prescription Drugs
Medicare
Medicaid
CHAPTER 9: TAXES
How to Access Tax-Deferred Retirement Accounts
Capital Gains Tax
The Post-death Challenge
Gifts
Common Tax Errors and Myths
CHAPTER 10: SCAMS, UNDUE INFLUENCE, AND ABUSE
The Faces of Fraud
When Your Parent is the Victim
Fight Back
CHAPTER 11: ISSUES OF ABUSE
The Signs of Elder Abuse and What to Do
Financial Abuse
A Special Case: Abusive Parents
CHAPTER 12: WILLS, TRUSTS, EXECUTORS, AND BURIALS
End of Life Medical Decisions and Advance Directives
What to do When There is No Direction
Making Decisions
Your Parents’ Funeral Plans
Estate Planning: Wills and Executors
Probate
Conclusion
APPENDIX A: WORKSHEETS
Assets and liabilities worksheet
Cash flow
Information you will need to know or find
A contact list for your parents:
APPENDIX B: CASE STUDIES
GLOSSARY OF TERMS
RESOURCES
BIBLIOGRAPHY
INDEX
Some 60 years ago, a major demographic change began in America as 84 million Americans were born between the years 1946 and 1964. After World War II, the troops returned home and rushed to make up for lost time by getting married and starting families. This birthrate explosion was so dramatic that demographers called the event “The Baby Boom.” Longevity is the second cause for demographic change, as many more people are living into their 80s and 90s. Boomers look forward to a long life, but meanwhile, their parents are also living longer.
Demographers and sociologists have published many studies on this population explosion, including its effects on the U.S. economy and the personal finances of that generation. In 2009, there were about 75 million Boomers, ranging in age from 45 to 63 years old. They currently make up about 29 percent of the U.S. population. Many are retired or planning to retire soon, but are caught between their desires and the needs of their aging parents.
Boomers have made many positive contributions to society, but their sheer numbers cause them to be the source of many burdens — to themselves and their children. Most Boomers never considered the fact that they might be “parenting” their parents someday — taking care of the needs of Mom and Dad, who once cared for them. Many Boomers are now looking after an older parent or relative while also raising their own children and working part-time or full-time. They now face a host of complex needs, ranging from managing their retirement accounts to estate planning, tax reporting, aging, and end-of-life issues — for both themselves and their parents.
It is hard for them not to panic when considering what they face, especially when realizing that so few have saved as much as they may want or need for the future. According to the 2007 Retirement Confidence Survey by the Employee Benefits Research Institute, 46 percent of baby boomers have saved less than $50,000 for retirement. With their own financial security in question, the need to take over their parents’ financial life, especially if it happens suddenly, can be extremely stressful. However, if approached one step at a time, they can get a handle on what needs to be done.
More than ever, people need help dealing with these major life issues, and educating themselves about their parents’ finances is critical. The Complete Guide to Managing Your Parents’ Finances When They Cannot is a straightforward and well-organized resource that speaks to the diverse demands of family finances in today’s economy. It is an indispensable guide that provides a basic primer in personal finance for those who will be involved in their parents’ financial lives. It is well organized: You can read it beginning to end, or jump straight to the section you need to consult immediately.
In order to be a financial caregiver, you need to know how to deal with legal and financial paperwork; government agencies and regulations; a host of insurance, investment, and estate-planning issues; and the inevitable emotional and psychological issues that arise whenever money and family mix. The Complete Guide to Managing Your Parents’ Finances When They Cannot covers all of these topics and more.
This comprehensive guide supplies the knowledge and confidence you need for the many hurdles ahead. It will help you decide who should manage your parents’ money; how to communicate with siblings and caregivers; how to manage your parents’ stocks, bonds, real estate, and other investments; how to deal with health insurance, Medicaid, and other insurance issues; and how to protect your parents from elder fraud. It covers every eventuality, including insolvency, in capacity and, eventually, death.
Whether you are a Boomer yourself or the child of a Boomer, this book will help guide you through many of the issues you may encounter when thinking about your parents’ financial needs. It could mean the difference between boom and bust for you and your parents. I hope you find it as valuable a resource as I did.
There are multiple reasons for wondering if you should think about your parents’ finances. Maybe you have not had the conversation with your parents about their finances yet. Maybe they are refusing help, or you are seeing signs that, indeed, there may be trouble coming soon. These reasons are among the few that made you get a copy of this book. Are you worried over nothing? Are you seeing signs that tell you something is wrong? What would you do if there was something wrong? The answers can be obvious and not so obvious, but there will be signs when you have no choice but to get involved.
There may come a time when you may have to deal with the possibility of needing to take over your parents’ finances. While this is not an easy topic to handle, using the guidelines provided in this book as a first step when considering this option will help you with gain knowledge and benefits for both the parents and child. This book will examine some basic guidelines to help the person who must manage another person’s finances.
As you read through this chapter, you will learn about what lies ahead of you in this situation. You will also learn of the benefits to not only your parents, but to yourself, as well. This chapter will also cover the basics in regard to managing your parents’ money.
Have you ever thought of what your parents might be doing in 20 years? This is a question that not many people often think of. Perhaps you never really thought of it, either, or maybe you have the image of your parents living happily into their old age, enjoying their lives and their grandchildren or great-grandchildren.
Maybe there have been thoughts about what would happen if something occurred. The likeliness of one of them dying may have crossed your mind in recent years; or maybe you are wondering how they would cope if they needed to move into a nursing home. Perhaps you never thought about these possibilities until recently.
It is also possible that you have never considered how your parents handle their finances, or if they could afford what they currently have. This is especially true if one parent dies and you realize that you are not sure if the surviving parent can maintain their current lifestyle. While Medicaid will handle many health issues, what happens if a long-term medical crisis strikes? And what happens if the surviving parent is not the one who handled the finances? There is also the possibility that the surviving parent, while able to handle the finances, is not able to handle the daily duties like buying food, handling medication, or knowing how to deal with being alone.
There are many reasons that adult children tend not to worry about any of this until it is forced upon them, such as:
• They are your parents. They dispensed the advice on a range of things, including finances and living better. They have known what to do for years, or at least made it look like they did. They do not need you to help plan their estate, draw up a will, or handle Medicare and their finances.
• It is not any of your business what they do with their money. As you grew up, they learned to let you make your own decisions, so what right would you have to ask them about theirs? And you do not want to imagine the conversation where you ask Mom or Dad where their financial papers are kept. Asking about a will or the estate may give the appearance you are greedy.
• When a parent dies, it hits a nerve. It does not matter if you love them, or even if you get along with them. When a parent dies, time stops, life stops, and it may seem as if there is no tomorrow. But, even if you have seen others go through this, you may have the mentality that your parents will be around for years, and you may feel that you do not need to think about it.
• Having a discussion with your parents about their money and their lives can be an uncomfortable conversation. So why bother?
While the main focus of this book is about money and financial management, your parents (or surviving parent) will likely need more help from you than helping set up automatic payments or having their home equity provide income in later years. It is quite possible your parents will need more assistance outside of the financial caregiver duties.
• Caregiving for your parents can be a demanding, intensive commitment, and it can be long-term. If you start helping your 70-year-old widowed mother draw up a financial plan for the rest of her life, you may be helping with her finances until she reaches 80, 85, 90, or beyond. The decisions you have to make over the years could change from how to afford to keep your mother in her house to how much money Medicare will pay for long-term care— or how to minimize the tax bite on her estate when she dies.
• Caregiving can become draining and exhausting, particularly if your parents’ financial affairs are not in order, and you may find it does not receive all the appreciation it deserves. A parent with dementia may have no idea how much you do for them, and a clear-headed parent may resent being told that he or she does not have the money to keep taking monthly gambling trips to Las Vegas or ordering two dozen pay-per-view films every week.
• Caregiving can also lead to conflict with your siblings, or your surviving parent’s partner or second spouse. Even if you have your parents’ support and legal authority, the rest of the family may disagree with your decisions or think you are exaggerating the problems — they no more want to think of your parents being old or mentally incompetent than you do. They also may feel you are trying to get special benefits in the will. In worst-case scenarios, you could be accused of spending your parents’ money on yourself, or of “undue influence” over their financial decisions.
• Caregiving demands time. The more help your parents’ needs, the less time you have for your job, spouse, children, and for whatever you do to relax and de-stress. The impact on your life — financial and emotional — will almost certainly be much bigger than you imagine.
• Caregiving is no picnic for your parents, either. Acknowledging that disability, death, or long-term illness lies somewhere down the road is not a pleasant experience for them, either. Asking you for financial help and guidance — whether they want to give you a power of attorney or have you look for a nursing home — means accepting aging and weakness, and admitting they no longer have full control of their lives. It also means sharing confidential, personal information with you and possibly, at some point, giving up their power to make their own decisions.
If the day comes when you are needed to help manage your parents’ finances, it should go smoothly. Even if your involvement goes smoothly, there will still be stress for both you and your parents — but the stress will be manageable.
If there is a medical crisis and you must intervene immediately without preparation, the stress will be worse. If one parent dies, the stress will increase even more. The surviving parent may be in no condition to handle the finances, the wrapping up of the other parent’s affairs, and their daily life. And there will be grief occurring with either cause.
If you have never discussed your parents’ finances, multiply the stress factor even more. If something were to happen, would you know such things as:
• Where is the living will?
• Is there a will?
• Who has authority to handle the finances?
• Who has authority to handle the legal issues?
• What is the condition of their finances?
• Where are the financial records?
• Is there a safe deposit box?
• Where is the safe deposit box, if there is one?
• Where are the legal papers?
• Are all the legal papers intact?
• Who are the lawyers, doctors, and bank people you need to find?
It is an honest assumption that you may not want to talk to your parents about their finances or how they manage their lives. It is also a very good assumption that the difficulty you will face having a conversation with them about money is nothing compared to facing a crisis and not being prepared. Having this conversation about financial matters when there is no crisis or imminent need will be less stressful than trying to accomplish all this in the middle of a crisis — whether emotional or financial.
One of the biggest benefits for your parents in planning ahead is the saving of their assets and resources to pass along to the younger generations. Most times, this is one of the biggest concerns of aging parents. As of 2006, nearly $95 million per year is lost during the transfer of assets between generations. Most of this is due to improper or complete lack of planning for taxes, medical needs, and missing assets.
Advance planning, no matter what form it takes, offers many other benefits to your parents once the planning is in motion. Here are some of the most important benefits:
• When it comes to investing and retirement, knowing about the 401(k) or the IRA that your parents have can help them use it more effectively. If you parents still work, ask them if they have a retirement account and if their employer contributes to it.
• Knowing the rules of Social Security and Medicaid helps, as both are complex and detailed.
• You should be aware of whether your parents will receive VA benefits. Knowing how to best use the tax codes to keep the most of your parent’s income and assets is another key issue. Both the placement and the timing of what assets are tapped — and when they are tapped — can save or cost your parents a lot of money.
• Along a similar path is estate planning. With the proper planning, your parents can minimize the tax payout, keeping more assets in the family where they wanted them to be. Estate planning also ensures your parents will know that their burial wishes are fulfilled when the time arrives. This also includes the area of living wills and final wills, which need to be clear and detailed.
• Should one parent pass away before the other, having the planning in place will help you help them maintain their financial stability and budget. Having a joint checking account, or legal authority to act in emergency situations, will save time and stress for both you and your parents.
• Having your parents go over their retirement plans with you can benefit them by having a second set of eyes to spot potential problems.
Whether your parents are young and in terrific shape, or starting to show the first signs of decline, the more you plan now, the better you can make their lives in the future — and the longer they can stay independent, living the life they choose, instead of a life they have to settle for.
When looking at the benefits of advance planning, you should also look at how the issue affects you — and what concerns could potentially arise. There are many benefits to both you and your family, if you make the plans ahead of their need. Let us take a look at your side of the picture.
Your parents will likely need you at some point in their lives. While they would not want to feel as if they are a burden — and you would hate feeling like they are — caregiving may seem like a burden to both of you at times. It is also possible that you could spend more time looking after your parents’ needs than they did looking after your needs as a child.
Being the caregiver, you will have additional demands on your time, as well as and some of your resources. This adds stress to your life and can be difficult to deal with. There may be times when you want to simply walk out the door and take a week off, but it will not be possible.
Although this book is not about caregiving, it is quite possible that along with watching your parents’ money, they will need you to provide other sorts of care, such as performing minor home repairs, doing some shopping, driving them to and from appointments, or making extra visits to spend time with them. Even if money is the only issue, tracking bills, deposits, investments, and figuring out what to do with their house are not responsibilities you can neglect. While this may seem like a lot of additional work to undertake, realize that you are not alone in considering the option of handling tasks within the family.
One central concern regarding managing parental finances is the lack of advance planning. If a coma, advanced dementia, or other serious illness leaves your parents unable to sign checks or manage their money, and there is no groundwork laid out for someone to handle the situation, you could be charged with covering the mortgage, insurance, and other monthly bills until they recover. How long can your finances handle the added payments? Would any other family members be able to offer you assistance?
While many parents will not require this much assistance, they may still feel guilty having you reorganize your life to help them manage their financial situation. However, when the time comes, they may not have much choice but to accept your help. Proper planning can help prevent the possibility that this may happen.
Caregiving is always going to be stressful. The more care you have to provide, and the worse your parents’ situation, the more stress you will feel. By putting in the work ahead of time while they are in shape to participate in the discussion and the decisions, you can reduce the stress you all may face later. It may be awkward and time-consuming to go over their finances now, but it will benefit everyone in the long run.
With this in mind, here are a few benefits to ensuring your parent’s finances are well taken care of:
• You can help your parents become financially secure in their old age.
• If you have their financial information readily accessible, you will be spared the pressure of scrambling through all their papers or trying to piece together information from tax returns.
• If you have already discussed money and their financial resources, you will know what sort of a budget you have to work with and whether your parents need to start liquidating investments.
• If you and your parents have arranged in advance for you to have the authority to help them — whether it is a power of attorney, a joint checking account, or you are the co-trustee on a revocable trust — you can do more for them than if you have to wait for a court to rule on your petition to become your parents’ guardian.
• If you have shared your concerns with your siblings and everyone has had a chance to discuss, weigh in, and modify your plans, the result will be less family conflict later. Primary caregivers often feel no one else in the family appreciates their sacrifices; even if they volunteered, they can become resentful that nobody is shouldering the burden. Siblings, meanwhile, may question your financial decisions or even your motives. Involving them in your decisions and asking for help and guidance can not only reduce strife, it will also give you more of a support system to lean on.
• If you know your parents have a will made out and that the will is up-to-date and clear about who gets what, that eliminates another possible source of trouble. There will be a smaller chance of siblings feuding over who inherits what.
• If you have made sure your parents have a living will that spells out what to do if they are in a coma, you will not have to decide yourself whether to turn off life support, and with any luck, you can carry out your parents’ wishes without having to fight the rest of your family in court.
• If you can protect your parents from elder abuse and fraud, you can avoid other kinds of tragedies, such as discovering an unscrupulous lover has stolen most of their retirement money.
• When you make the financial picture better for your parents, you make it better for yourself — and that, in turn, will make your parents’ life better. Many parents feel guilty for creating a burden on their children by not having their finances adequately prepared. With prior knowledge of your parents’ financial picture, and a working knowledge of Medicaid, you can greatly reduce the possibility of lost income or having to pull money from a retirement account early.
• Advance planning will also help reduce the feeling of uncertainty when deciding which task to handle next. Going into your parents’ financial future with at least a general direction can help you avoid indecision, lost time, and wrong turns, as well as the feelings of being inadequate and incompetent because you were unable to handle tasks that may be crucial.
Being the caregiver will have an effect on both work and personal life. You will be the one who handles the paperwork, medical forms, household management, and overall budgeting. What does this have to do with parental finances? You will be the one who needs to minimize waste and lost time for both you and your parents. Getting to doctor appointments, making sure the proper forms are filled out correctly the first time, ensuring the bills are paid on time, and watching for signs of elder abuse or neglect are all part of making sure your parents’ money goes where and when it is needed to have the best outcome possible for everyone.
Two related issues must also be considered here. If you have children, this will become a family affair. Advance planning will help them adapt as well, so if there are sudden changes in your parents’ lives, your children can have a better handle on the situation. The other issue is time. If you start managing your parents’ lives when they are 70 and they live to be 92, you will be providing care for most of those 22 years. You, too, will be aging. Your children may need to step in to handle tasks that neither you, nor your parents, can manage anymore. Having plans in place can help them know where — and how — to do what is needed.
• Now that you have decided to take on this task, however small or large, you will need to know some of the basics of what you will be doing as the financial manager of your parents’ money:
• Making up a complete picture of your parents’ finances. This includes how much money your parents have, such as accounts, stocks, bonds, non-cash assets such as their house, and how many expenses and debts they have. This will give you a look at what you have to work with.
• Figuring out when to take part in, or take over, your parents’ finances because it is the only available option.
• Deciding just how much authority you will need to handle your parents’ financial affairs and how to best use the authority.
• Learning your parents’ bookkeeping methods so they, and everyone else, can follow along with what you are doing with their money.
• Deciding, and recognizing, when or if the situation has gone beyond your abilities, and having to find a professional to handle things further.
Unfortunately, the first issue among many will be to discuss these options with your parents. See the next chapter.
Table of Contents
When you know there is something wrong with the financial picture in your parents’ life, you may find yourself asking two difficult questions. First, do you intervene? And if you choose to intervene, how do you discuss the issue with your parents? This chapter will focus on how to know when to intervene, as well as how to handle this delicate subject. We will also cover the amount of involvement you may need to have in your parents’ financial life, as well as the topic of raising this subject with your parents and anyone else closely involved in the situation.
The first issue you will want to face is how to get ahead of the financial problems before they are too difficult to handle. This book provides a set of guidelines to help you know when you need to intervene and how involved you will need to be. This chapter also covers the issue of working with stepparents and partners.
There is rarely a good way to bring up problems about finances, especially when it is a grown child talking to their parent about the parent’s money. But there is a good time to deal with the issue – before it becomes a problem. Yes, this is easier said than done. But there are sometimes clues that they may be ready to discuss the issue with someone. Some hints might include statements like your mother mentioning how a friend of hers gave her daughter the power of attorney, or your father mentioning how difficult it may be for your mother to handle finances if she became a widow. Even if your parents do not bring it up directly, comments such as this could mean they are willing to talk, and these comments are your way to start the conversation.
What if your parents do not make any comments? Then it is up to you to start a conversation. Some low-key ideas that may help you include telling them you are writing your will; putting together a retirement plan; or creating a power of attorney or a living will and asking them how they wrote their own will or who handled it for them, as if you are asking for advice. Ask them about who to contact about their estates should it be needed.
But what if this fails, too? Find someone else, such as an uncle or aunt, family friend, minister, or rabbi, who can start the conversation for you. You can also enlist the help of family members or your siblings if using a group effort seems easier. You should at least let the rest of the family in on this discussion. They should be aware that you intend to discuss financial issues with your parents. It is possible other family members have either thought of doing this, or have tried and had little luck themselves.
There are two potential issues that may arise if you do not include the family. If your family discovers you have access to your parents’ finances or important papers, they may wonder why you did not tell them. And if other members of the family are closer to your parents, either physically or emotionally, they might think you are attempting to trump them into taking over their position in your parents’ lives.
How do you include your family? The best way is to hold a group meeting to accomplish three things: It allows everyone in the family to stay informed; it shows that you are not attempting to sidestep any other family members; and it becomes a good brainstorming session in case anyone else has any other ideas. Another issue that rides along with this is when a family member becomes your parents’ official caregiver — they will likely need the support of the remaining family members to carry out the duties effectively and with less strain on everyone. Though you could meet with both siblings and the parents at once, it gives more of an advantage to have a “pre-meeting” with just your siblings so that no other issues surface during the handling of this topic. Having a pre-meeting also allows any other issues between family members to be discussed without involving Mom and Dad in other arguments or conversations.
A pre-meeting also allows everyone to know who is capable and willing to take on certain duties of the caregiver role. It also sets aside any unknown preconceived notions that may have gone unnoticed otherwise. If there are siblings who think that they are obligated to carry out certain duties, make sure they are aware that they should not take these duties on if they are not comfortable with them. There may be underlying opinions that need to be addressed as well during this meeting.
There is also the possibility that certain members of the family simply do not want to be involved with their parents’ personal lives. This issue also must be considered and accepted.
This pre-meeting is not supposed to be a solution to everyone’s problems; it is about planning the best care for your parents when the time comes that they will need that assistance. There will never be complete agreement on every issue. The point of the meeting is to make sure everyone in the family knows what is going on and why; it is the best way to start the conversation and decide who should initiate the discussion. If you and your siblings can decide what advance planning needs to be done, such as power of attorney, trusts, wills, or assisting in balancing the checkbook and making sure the bills are paid each month, this covers half of the work that needs to be completed.
Some tips to helping keep the pre-meeting productive include:
• Setting a time limit and an agenda of topics to be covered beforehand