Everyone is familiar with “Generation X,” but did you know it has garnered another term? Gen X is also called the “sandwich generation,” describing individuals who are simultaneously caring for their children as they enter adulthood and their aging parents who require more support.
Caring for aging parents can be quite an endeavor, and while much of the focus revolves around medical care, there are other important considerations. In many cases, caring for aging parents also means helping them continue to manage their finances responsibly, and as wealth managers, we are going to focus on that aspect. Although awkward at times to discuss or handle, embracing objectively handling finances for an aging parent can ensure loved ones have enough money to handle rising healthcare expenses and pass on a legacy that does not incur a huge tax bill.
Not all family members may be immediately receptive to your efforts to attempt to help your parents with their finances. The first step in caring for aging parents should always be an open and honest family discussion.
Discussing Difficult Topics
Nobody likes getting older. And nobody likes being told they need help doing something they’ve been capable of doing on their own for most of their life. But there may come a time when you need to speak with your parents about their finances and the future of their financial planning. This is especially important for families of divorce and/or with multiple children.
It may help to begin talking about your own personal finance plans. This can help put your parents at ease when you discuss their financial situation that it is both normalized and you have familiarity. Ask them if they need help with credit card bills, medical bills, or other expenses. By keeping the topic conversational and showing your parents how you manage your finances, it may be easier to move on to the next important step.
Trusts, Wills, and “Being the Beneficiary”
Most people are aware of the concept of being the beneficiary. But this is a misunderstood term, and thinking about it incorrectly can lead to negative outcomes, even with the best of intentions. You must help your parents understand that simply being the beneficiary could leave you with tax issues if not properly organized. It could even derail your financial plan by saddling you with a sudden tax burden you weren't prepared for.
Instead, discuss the ideas of wills and trusts and their differences. Based on both your finances and your parent’s finances and their ultimate wishes, a trust might be a better option than simply naming you as a beneficiary or listing you as a TOD (transfer on death) for assets.
Know Where the Important Stuff Is
This is basic, but constantly overlooked. Throughout this discussion, it's prudent to learn where all the important legal documents are. This includes birth certificates, marriage certificates, wills, tax returns and financial account information, health information and documents, insurance policies, real estate titles, and the location of safe deposit boxes or other important assets.
Without knowing where these items are, it can be harder to both speak with professionals when you need to and claim money, insurance payments, or assets once a parent passes.
Power of Attorney
Talking to a parent about becoming a power of attorney can be uncomfortable for both of you. But this end-of-life planning discussion is very important, and it should be done while your parent is still well. If you choose to wait, it could be too late. The important thing to remember is that by becoming a power of attorney, you are ensuring that the estate planning and your parent's end-of-life wishes come to fruition.
Once decisions are made, it should be up to you to bring the necessary documents to your parents. The actual documents depend on what matters you’ll actually take care of. Speak to a financial planner to learn more about living wills, financial power of attorney, and HIPAA release forms, and they can connect you with the appropriate law professionals.
There are also different types of power of attorney (durable, medical, financial), each granting different powers and subject to particular legalities. A financial advisor or lawyer can discuss them with you in more detail, so you and your parent can make an informed decision. Remember that there is power in making these decisions in concert with a larger financial plan. That is one reason to involve a financial planner. We see too often that when you only knock out small pieces of the puzzle that don't interconnect, things can be missed or have conflicting information that make for stressful situations down the road.
Healthcare Expenses
As your parents' age, so does the possibility that healthcare costs will rise. In a perfect world, your parents will remain healthy for many years, but you need to prepare for the fact that your parent’s health may, at some point, require specialized care. You may need to hire caregivers for home care or to place one or both of your parents in an assisted living facility, and the cost of those care options carry sticker shock.
You should help your parents plan for this early. Hopefully, the need to care for your parents in such a way never occurs. But by planning early, you can alleviate finances playing too large of a role in deciding on the best possible care down the road.
Go over your parent’s health insurance and Medicare plans. Check to see if their retirement plans can be used to compensate for healthcare costs. One thing we recommend to all our Wealth Management clients is setting up a long-term care insurance plan early. Many life insurance plans also include this option, but many skip it not understanding the impact. Working with a CERTIFIED FINANCIAL PLANNER (CFP®) can provide you with more recommendations on how to best help your parents in the future should the need arise.
Social Security
Social Security also offers many plans for retirement and disability benefits. Additionally, social security earnings can help pay for Medicare costs. It also pays for a variety of other medical expenses. Ensuring your parent’s retirement plan is in order can help them (and you) save a lot of money on medical costs in the future.
How Plancorp Can Help
As we all grow older, navigating the complexities of retirement, insurance, and medical plans can get confusing and stressful. Whether you find yourself in the sandwich generation looking for ways to take care of your parents or as someone with adult children you hope to not be an undue burden on, working with a proactive Wealth Manager like someone from the team at Plancorp can be an invaluable step.
We do our best to make the complex simple, so you have confidence for what's next in life's journey. Speak with a fiduciary financial planner from our team to learn more so that you can make the right decisions for your parent’s future. Get started today.
