Financially Sound: Protecting your Assets as you Age

By Emily Sanders
Gesher - Jewish Professional Women's Newsletter
May 2007

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 currently assist their parents with their finances. Complicating matters, many boomers must manage their parents’ financial affairs long distance.

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 the home, they have few assets.

Having ‘The Talk’
The first step to helping your parents involves just talking to them. This should occur before a crisis, like an illness or death of a spouse. Some parents will welcome the conversation. 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 now and for the future:
• 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)?
• 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?
• Do your parents have a living will and medical power of attorney?
• Have your parents protected their assets, and do their investments generate sufficient income?

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 parent.

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:

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.

Supplemental Income
Once assessed, you may determine that you need to help support your elderly parent 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 these arrangements are often kept private.

Long-Term Care Insurance
Long-term care insurance (LTCI) provides coverage for extended care, 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 saved to fund your lifestyle for those healthy 25 years as well as pay for long-term care 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 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 care during our lifetimes.

Can you self-insure? Yes, if you have at least three million in mostly liquid assets. But anyone with assets between $200,000 and $3 million are candidates for LTCI. It goes back to that “living longer” issue. 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 stock, your 401-K and your IRAs, a good LTC policy must be an integral part of your financial portfolio.

Medicaid Provisions
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 a future candidate for Medicaid, a federal entitlement program administered by the states.

Eligibility requires, among other things, that the person have no more than $2,000 of assets in their name within the last five years. Your elderly parent may consider gifting all assets to adult children if Medicaid coverage (eg., nursing home care) is envisioned five years hence and no LTC Insurance policy is in place.

Identifying Additional Help
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 experience in geriatric care. While fees can run as high as $100/hour, GCMs can assess your parents’ ability to:

• Live independently.
• Recommend home health care.
• Coordinate round-the-clock care.

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

Emily Sanders, CPA, is a JPWN member and President & CEO of Sanders Financial Management, Inc. She can be reached at (770) 448-5111 or esanders@sandersfmi.com.