Anna is amazing. At 94 years old, she is still incredibly energetic and remains larger than life in every way. Yes, she needs a bit of help getting out of bed in the morning, but from her perspective, that’s her only limitation. As she’s told me time after time, “My mind is still ticking away perfectly!” She firmly believes her cognition is faultless, and because she is fiercely independent, she’s kept her children completely removed from her finances.
A few years ago, Anna sold a piece of real estate and put all of the cash in her checking account. She still has plenty of cash remaining—enough to pay full-time, agency caregivers for another five to seven years. However, because her children are out of the loop, they have no idea how much savings she has or how soon her assets will run out. They worry that she’ll outlive her savings, even though Anna is set, literally, for life.
As a financial advisor, I see situations like these all the time. Anna’s situation is a simple one, but not all seniors—or their families—are as fortunate. It’s a fact that aging affects financial decision-making, even if that decline is not obvious to family members. That makes creating a long-term plan that includes some basic checks and balances, as well as a pre-determined timeline for transitioning financial responsibility from the parents to the adult child, one of the most important pieces of a smart financial plan.
If you have aging parents (or if you’re the aging parent yourself!), take these three steps as soon as possible to avoid costly mistakes in the years to come. Your future self will thank you!
In many families, money can be an emotional topic, and just as it can be difficult for many seniors to understand why they need to hand over the car keys when driving becomes unsafe, handing over control of their finances can also become quite the challenge. Ease the way with a family meeting. Have an open, honest discussion about how much money is available to pay for your parents’ care and who is the most suitable person to manage the assets when they are no longer capable of making prudent financial decisions. Decide together when and how to hand over the financial reins.
If you need help, consider hiring a mediator—a trusted financial advisor, family therapist, or mediation specialist. With the help of an impartial third party, everyone involved is more likely to remain open-minded and, hopefully, walk away with confidence in the plan and greater peace of mind. I also recommend sharing my blog post To protect your financial future, hand over the keys to your kingdom today with your parents to initiate the conversation. Hopefully, it will open the door to a more comfortable conversation.
Create a system of checks and balances.
As your parents age, they will inevitably need more and more assistance, and a system of checks and balances can help avoid a crisis. According to a 2016 report from the National Institute on Aging, trouble managing money is one of the earliest signs of Alzheimer’s disease and other age-related dementias. The deficit often becomes clear when the checkbook suddenly doesn’t balance because bills are paid twice, when every charity (not a select few) receives a check, or when a caregiver has too much influence.
At our firm, we ask every client to sign an incapacity agreement when they turn 65. We ask, “What would we see you do that would be out of character so you would want us to intervene?” The answers range from making sudden changes to their financial plan, to gifting large amounts of money, to becoming secretive about their assets. The agreement allows us to call the person they name in the contract (perhaps you) when we see one or more of these triggers. By having this conversation long before any decline is anticipated, we’re able to ease the transition from financial independence to asking for help.
Establish joint control of your parents’ accounts.
We typically recommend establishing a revocable living trust, appointing the most responsible and available child as co-trustee, and opening a bank account in the name of the trust with multiple signers: the parents and the co-trustee. Another option is to name the adult child as an authorized signer (not a joint owner) on the parents’ account. Many of our clients’ families use our powerful eMoney Personal Financial Portal to oversee their parents’ financial transactions and balances and collaborate with us as financial planners.
Even without signature authority, Mom and Dad can give you visibility into their accounts using an “interested party statement” or giving you online access to their accounts so you can help manage the finances even from a distance. Both of these options are safer than opening a joint account, which can put your parents’ assets at risk. If your parents are not well enough to participate in financial decisions, that’s when it’s time to trigger the previously established power of attorney for their financial matters.
For any child, taking control of your parents’ assets can feel like you’re overstepping an invisible line in the sand. Suddenly your old roles are reversed, and you’re the one holding the purse strings. Yet making that transition can be an important stress reliever for everyone involved. If you don’t know where to begin, talk to us. We’re happy to help guide you through this delicate transition to create a smoother path toward a sound financial future—for the whole family.