Sanders Financial Management

As the kids leave for college and begin their adult lives, the thoughts of many women turn to their aging parents. Millions of baby boomers are currently assisting their parents with their finances. Complicating matters is the fact that many boomers must manage their parents′ financial affairs from long distances.

While the “Greatest Generation” who lived through the Great Depression and World War II has a reputation of being prodigious savers, the reality is that many live on a fixed income of Social Security or a small pension. Besides their home, many have few assets.

The first step to helping your parents with their finances involves just talking to them. This talk should occur before a crisis, like an illness or death of a spouse. Some parents will welcome the conversation, while others may become defensive out of fear of becoming dependent or losing control, or they simply may be reluctant to burden you.

You should find out what your parents′ needs and goals are both now and for the future, including the following:

• Are your parents able to pay their bills and taxes on their own or do they have a tax preparer?

• Have they prepared an estate plan and can they locate all of the necessary documents (wills, trusts, charitable vehicles, etc.)?

• Have your parents purchased long-term care insurance and, if not, should they?

• Can your parents live independently or do they require home care? Should they consider community living, such as an independent or assisted living facility?

• Have your parents protected their assets and do their investments generate sufficient income?

Personal Data Records

After talking with your parents about their plans, the next step is creating a personal data record to compile important information. The data record should contain the following:

• Financial information: banking and investment account information, real estate holdings

• Legal information: wills, durable power of attorneys, health-care directives

• Funeral and burial/cremation plans: prepayment information, final wishes

• Medical information: healthcare providers, list of medication(s), medical history

• Insurance information: policy numbers, insurance company names, toll-free phone numbers

• Location of important records: keys to safe-deposit boxes, real estate deeds

• Financial advisor information: contact information for any professional service providers

In this planning process, your parents must decide who can act on their behalf. While parents are generally uncomfortable playing favorites, they should still select one child with the skills to perform certain critical roles under a medical power of attorney or as an executor of a will. When multiple parties are responsible for the same task, the process can slow down to the detriment of the elderly parents.

Be sure to make copies of all documents and keep them in a central place where they are readily available in an emergency. Financial advisors have seen many instances where legal or financial documents had to be faxed to a service provider to have critical information released or quick action taken on an important issue.

Once assessed, you may determine that you need to help support your elderly parents with a monthly stipend or by paying for legal fees or insurance coverage. While these financial arrangements are not uncommon, many people are understandably embarrassed at accepting help from their children, so such arrangements are often kept private.

Long-term care insurance (LTCI) provides coverage for extended care, whether it is in your home, an assisted-living center, a hospice facility or a nursing home. From a financial perspective, LTCI is asset protection. If something were to happen to you tomorrow, would you have enough funds to pay for care? What happens if the money runs out and care is still needed? What's the impact to your spouse or to the family? What if this “something” happened 25 years from now?

Do you have enough money saved to fund your lifestyle for another 25 years, as well as pay for long-term care in the future when the costs will be far greater than today? It's not if, but when, because with longevity comes a decline in health.

Long-term care insurance not only protects your assets, it also protects your lifestyle. Advances in medicine have almost doubled the average lifespan over the last century and that increased lifespan means we are more likely to need some sort of health care during our lifetimes.

Can you self-insure? Yes, if you have at least $3 million in mostly liquid assets. But anybody with assets between $200,000 and $3 million are candidates for LTCI. It goes back to that “living longer” issue, in which it makes sense to include LTCI in your financial plan to hedge that probability at least in part.

Beyond protecting your lifestyle, long-term care is a way of protecting your financial assets and your children's inheritance. Just as you manage your stocks, your 401-K and your IRAs, a good LTCI policy must be an integral part of your financial portfolio.

If your parents or widowed parent have under $200,000 in assets, including a home, and have little or no retirement income other than social security, they may be future candidates for Medicaid, a federal entitlement program administered by the states.

Eligibility requirements for Medicaid include, among other things, that the person have no more than $2,000 of assets in his or her name within the last five years. Your elderly parent may consider gifting all assets to adult children if Medicaid coverage, such as nursing home care, is envisioned five years hence and no LTCI policy is in place.

If you are unable to personally care for your parents, you may want to hire a geriatric care manager (GCM). Generally, these professionals are trained as nurses or social workers and have specific experience in geriatric care. While fees can run as high as $100/hour, GCMs can assess your parents′ ability to:

You also can seek the services of a financial planner or CPA who has received specialized training in eldercare services and who can marshal resources from various disciplines. Helping your parents with their financial affairs is challenging and time consuming, but it ultimately is satisfying when you secure your parents′ future.

Emily C. Sanders, CPA, is president and chief executive officer of Sanders Financial Management, Inc. She can be reached by phone at (770) 448-5111 or by e-mail at esanders@sandersfmi.com.