Planning for Your Parent's Care
Starting The Conversation
Asking your parents about their future plans shows that you care about their well-being, and helps you understand how you might fit in their plans. While this can be sensitive topic, it is an important conversation to have when beginning to plan for their care. You may consider having the conversation in a comfortable environment, and initiate the conversation by expressing to your parents that you care about their future well-being and ask if they would be comfortable discussing their thoughts about their future care. You may consider asking open-ended questions, such as “What plans do you currently have in place for you future care?” It is important to actively listen to their feelings, wishes, and concerns about the future. Once they indicate their willingness to open up about their future plans, you may begin by asking them about their personal finances.
Understanding Their Finances
Assets and Liabilities (What They Own & What They Owe)
It’s important to convey to your parents how understanding their financial situation can help them plan for their care. By understanding their finances, they can get a better idea of what options may be available to them in the future. There may be some resistance by them to share certain details, however, by initiating the conversation in a non-intrusive way, you may open the door to them including you in the planning process. You might start by asking them if they are comfortable sharing any details about their finances with you. If they choose to do so, begin by helping them create a list of what they own. This could include checking and savings accounts, retirement accounts, brokerage accounts, life insurance policies, or physical assets such as precious metals or real estate. The accounts may be held at different institutions, so creating a detailed list including the account types, values, and locations could be helpful to keep track of everything. Next, you may want to ask them if they have any debt. This is important because some types of debt may be more impactful to their finances than other types. It will be helpful to know the balances, interest rates, and payments associated with each type of debt, and if not, try to help them find out these details. This may help determine which debt should be prioritized when payments are made, or if any particular debt should be paid off sooner than later. By creating and regularly updating a list of assets and liabilities, your parents can organize their finances as well as identify trends, like if their assets are growing over time or if they are reducing their debt.
Attached here is a sample template that may be a good resource for your parents to utilize when beginning the process of creating a list of accounts.
Income and Expenses
Understanding the specifics of your parents’ income and expenses may help you better understand which income streams may or may not be available to them in the future. For example, a pension can have various payout options available for participants. If a payout option other than 100% joint and survivor is chosen, there is a possibility that the monthly pension benefit could be reduced if the primary pension beneficiary passes away first. Social Security works similarly in that the larger benefit is usually the benefit that continues upon the passing of a spouse. For example, if one spouse’s social security benefit is $3,000 per month and the other spouse’s social security benefit is $1,500 per month, the $3,000 benefit becomes the remaining benefit for the surviving spouse if one of them passes. The $1,500 benefit is no longer paid, which could potentially impact the lifestyle of the surviving spouse. You also want to ask if they currently have any long-term care insurance. If they do, you should understand how the coverage works and how much they would receive once the policy is activated. Lastly, if they are taking withdrawals from an investment account or retirement account, it is important to know how much is being withdrawn, and if the withdrawal rate is sustainable.
Attached here is a cash flow planning spreadsheet, which may be a helpful resource for your parents to begin outlining their income and expenses.
Asking About End-of-Life Documents
Asking your parents about their plan if something happens to them can be a sensitive topic. However, it is important to ask, because without the proper documents, caretakers may be unsure of the parents’ wishes or unable to use the parents’ funds to pay for their care. Estate documents such as a will, powers of attorney, and medical directives provide instruction to the caretakers regarding the parents’ wishes for their affairs and estate, in the situation that the parents are incapacitated or deceased. For example, a durable financial power of attorney grant the authority to an individual to utilize the parents’ funds to help pay for their personal affairs in the event that they are incapacitated. Without this document, relatives may be unable to use the parents’ funds to help pay for their care. The medical powers of attorney grant someone the authority to make medical decisions on the parents’ behalf, if they are incapacitated. Medical directives give specific instructions on certain future medical decisions that may need to be made. If your parents currently have these in place, you may ask them to make copies for you, or ask them where they are stored, in case something happens and someone needs to make decisions for them. If your parents do not currently have these documents, or if they need to be updated, they may consider consulting an estate planning attorney to help create or update them. Lastly, you may ask your parents if they have funeral arrangements, or particular wishes for their funeral. Convey to your parents that you want their wishes for their health and estate are the priority and that planning can help ensure they are fulfilled.
Creating a Plan
After understanding your parents’ wishes and financial situation, you should be able to begin helping them plan for their care. Together, when they are ready, you may begin researching how much their future care may cost for things such as moving into a retirement community or assisted living facility. From there, review their income to determine if they will be able to afford these future plans. If not, they may either have to adjust their plans, or you will have to assist them in paying for their care such as caretaking for them in your own home.
If you meet resistance from your parents around planning for their care, you might ask if they would be more comfortable consulting a professional to help them plan. A financial planner should be able to do an analysis of their financial situation and help with creating a plan. It could also be helpful to consult an estate planning attorney to assist with their estate planning needs, and a qualified tax professional to help them with their annual tax filings as well as provide them with individualized tax advice. By working together and with trusted professionals, the planning process can be made easier, which will reduce future stress and help better prepare everyone for whatever the future holds.
Portfolio Manager, Crescent Sterling Ltd.
Brandon Bergeron is a Portfolio Manager at Crescent Sterling Ltd.
He works with families and business owners to help them plan for
their long-term financial goals.