October 2003

Provides strategies for dealing diplomatically with family finance issues with aging parents.
 
 

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Talking With Aging Parents About Finances

Each family is unique. While this publication speaks to the grown children of aging parents, the authors recognize that in some families it may be the parents who need to persuade their children to talk about future financial arrangements. We hope that much of the material included here will be helpful to older family members trying to get reluctant "youngsters" to help them plan for the future. 

At some point in their lives, parents and adult children will face the challenge of talking about the financial issues associated with potential chronic illness, disability, mental incapacity or death. Rationally, we may know that the best way to minimize feelings of helplessness and stress is to plan ahead. Emotionally, however, we may find it difficult to talk about these issues. The situation can be more complicated if there have been years of underlying tensions or misunderstandings among parents and their adult children.

This MontGuide provides strategies to help overcome barriers that often hinder conversations with aging family members about money. It also explores alternatives to consider if a parent is healthy but needs assistance with finances, and legal options if one or both parents are incapacitated.

Strategy #1: Plan Ahead

Sometimes people hesitate to discuss financial concerns with their parents for fear of appearing overly interested in their inheritances. After all, talking about passing on Mom and Dad's money usually means talking about the circumstances under which it will be transferred. Few of us want to start a conversation with, "Dad, when you die" or "Mom, if you become unable to make decisions ...." 

Planning ahead requires anticipating negative situations--dependency, disability, incapacity, and death--and exploring solutions to these uncertain, hard-to-face problems. Discussion of such topics can make everyone feel uncomfortable or uneasy. Most of us do not like to think of the day when our parents may not be able to manage their finances. In fact, parents themselves worry about becoming mentally incapacitated, outliving their retirement savings, or facing bankruptcy caused by long-term health-care costs. Some may have heard the sobering statistics that more than 90 percent of elderly nursing home residents find themselves in poverty within one year of entering the home. 

Despite these anxieties, there are good reasons to plan ahead. If families understand the financial and legal issues involved in planning for incapacity, they may protect parents' assets from mismanagement, fraud or exploitation by others. Although it will not reduce the emotional pain that accompanies disability, planning ahead can: 

· help avoid crisis decision-making and make decisions easier in difficult times;

· reduce emotional and financial upheaval later on; 

· ensure that your parents' life-style, personal philosophies and choices are known before the time comes when they are not able to participate in making decisions; 

· increase the options available to older persons and their families; 

· decrease the possibility that the family will have to engage in more intrusive, restrictive activities, such as taking court action to seek a guardianship or conservatorship; 

· reduce disagreements among siblings about "what Mom or Dad wants" and how assets should be handled.

Planning ahead does not prevent all problems, but it does provide parents with more options and enables their families to act more effectively.

Strategy #2: Talk Among Family Members

Another way to begin a conversation is to share your preferences and plans in the event of your own serious illness or death. This may open the door to discussion. Remember, mental incapacity is not always a function of getting older; a debilitating accident could happen to anyone, regardless of age. Parents may question the motives of adult children who express concern about parental finances but have not prepared their own living wills, durable powers of attorney or powers of attorney for health care.

When and where discussions are held can have a tremendous impact on outcome. If possible, avoid discussion of finances during emotionally demanding events, such as holiday celebrations. A relaxed, shared activity, such as walking, golfing, or baking, may diffuse some of the tension when the conversation turns to money.

Remember, it's difficult for many people to talk about finances, especially when discussing incapacity and the inability to manage. Talking about potential loss of control can be even more difficult if the older person is already experiencing health changes. Grief, anger, frustration or uncertainty may be expressed. Feelings are likely to be particularly strong if your parent fears that he or she is giving up control. Even if these feelings are not verbalized, be aware that your parents may have them. Be sensitive to and acknowledge your parent's feelings and preferences, recognize his or her needs to be independent and in control, and do all you can to maintain your parent's dignity.

Try to imagine how the situation looks and feels from your parent's perspective. Ask yourself, how would I feel if I were in Dad's shoes? Give your parent your attention, listen to what is said and communicate your understanding. Parents who sense empathy and understanding are more likely to listen. 

A good way to start a discussion is for all family members to express good intentions and a willingness to listen carefully. The objective is to set the right tone. Avoid an aggressive approach that may sound like a power play. Don't say, "I know you're going to have financial problems as you get older, and I know how to solve them for you." Make it very clear that you are acting out of concern, not self-interest. An effective way to express this concern is to begin with "I" instead of "you." "I'm worried that if something happens to either one of you, we won't know what to do." Or, "With rising costs of health care, I'm concerned that a major illness could wipe out your resources." 

Respect your parents' right to make choices as long as they are capable of doing so. In some cases, an older person's view of what is best for them may differ from that of other family members. This does not mean that any one view is wrong. Differences of opinion may result from different attitudes, values or desires. Show respect for your parents' right to make choices, even if you disagree with those choices--it is essential for an open discussion. Unless your parent clearly has passed the point of effective functioning, you should not presume to decide what is best for him or her. As long as your parents are healthy and capable, the participation of other family members in their financial affairs should be by invitation only. Although it may be frustrating to you, it is perfectly legitimate for parents to say that there are some topics they choose not to talk over with the "kids." They have a right to financial privacy!

If your parents don't feel comfortable talking directly with you about their personal finances, suggest that they talk to another family member, an attorney, or a financial advisor who specializes in working with older persons. Another possibility is to send your parents appropriate books or articles from financial magazines and newspapers. The MSU Extension Service has educational materials on estate planning, living trusts, powers of attorney and living wills. Other sources of information include the American Association of Retired Persons, the Montana Office on Aging, Area Agency Offices on Aging (see list of offices at end of document). 

Strategy #3: Hold a Family Meeting 

If a phone call or letter initiating a discussion about these issues would upset your parents, you may want to wait until the family is together--perhaps to celebrate a holiday. At that time you can explain that you would like to have a family conference to discuss financial decisions that would have to be made if one or both parents developed a chronic illness, became disabled or mentally incapacitated, or died. If possible, however, avoid emotionally charged and tiring times for the talk. 

Involve appropriate family members. Your parents' wishes should determine who takes part in the discussions. Some families have found it advisable to include as many members of the immediate family as possible. Excluding an adult child without his or her agreement may result in later problems. If a parent has divorced and remarried, it is appropriate to include the new spouse in the discussions. Parents should decide whether or not they are comfortable with their sons- and daughters-in-law present. Regardless of who is involved, everyone should respect the parents' need for privacy regarding the specifics of their finances.

If family relations are so tense that some adult children will not participate in a family meeting if other siblings are present, it may help to suggest that an outside person such as a family lawyer, advisor, social worker, or family counselor or therapist facilitate the meeting. Often, the mere presence of an "outsider'' will keep the mood calm and businesslike and will keep the conversation on course. However, an outsider's presence may cause a lack of openness by family members. You decide what's appropriate for your situation.

Prepare for the meeting. Before the family meeting, make a list of concerns to be discussed and questions that must to be answered. (See list of potential questions below.)
 

Family Finances: Discussion Points

• Do you have a will? If so, where is it located?
• Have you granted someone a durable power of attorney? If so, who has the power, and where is the document located?
• Have you written a power of attorney for health care? If so, who has the power, and where is the document located? 
• Do you have a safe deposit box? Where is the box located and where is the key? Where is the list of contents?
• What is the location of essential personal papers--birth and marriage certificates, dissolution of marriage documents, Social Security and military service records? 
• Where are life, health and property insurance policies kept? 
• Have you made a list of investments (savings accounts, certificates of deposit, stocks and bonds, etc.)? What are the mailing addresses of the institutions that have the investments?
• Have you made a list of the personal and real property that you own? Where is the list located? 
• Who are your financial advisors? What are their names and addresses? 
• Have you developed a letter of last instruction? If so, where is it located?
• If you have a retirement program, is there a death benefit for survivors? If so, whom should the survivors contact?

· gathered together financial information; 

· made known to at least one family member the location of important papers;

· prepared for the possibility of incapacity; and 

· considered how to pay for long-term care should the need arise. 

Before initiating the discussion, decide who will take notes. At least one person should record any items that require follow-up, such as confirming who was designated to have power of attorney or checking into the cost of long-term health care insurance. 

At the meeting, start with the basics. Begin by making a list of where financial documents are kept. Important records include savings and investment accounts, Social Security numbers, insurance policies, pensions, contracts, and debts. And while you are expressing concern about your parents' financial records, you should also be able to account for your own. Your parents may question your sincerity if you say they should have this type of list while you don't have one.

Be willing to compromise. For example, a mother who has said she would not go to a nursing home may prefer that alternative to living with a daughter whose home is 1,500 miles away. In the local nursing home, friends and relatives could occasionally stop by for a visit. In her daughter's community, the mother might know no one beyond the immediate family.

Adult children who try to make financial decisions for their parents during the meeting because they think they are the "experts" can become the focus of resentment from both the parents and siblings. Keep in mind that the purpose of the meeting is to discuss the money issues and the parents' wishes, not to demonstrate the financial wisdom of each sibling.

Follow up on the discussion. At the end of the meeting, review the notes and encourage everyone to act promptly on any decisions that were made. A son may check on the costs of long-term care insurance while a daughter gets a copy of the living will declaration. One parent may visit the Area Agency on Aging, while the other writes the American Association of Retired Persons for information. Other actions may involve setting up a meeting with an attorney or financial planner to answer questions about estate planning and other matters. If parents are too frail to accomplish the tasks, jobs can be divided among family members based on time available, skills and geographic location. However, parents who are capable can do the tasks themselves.

Remember to appreciate your parents' capabilities. Too often, when people become frail, we tend to focus on what they can no longer do. Although the proportion of older persons reporting difficulty with one or more personal care activities rises from 15 percent for people aged 65-69 to 49 percent for people 85 years and older, it's important to focus on what your parent can continue to do and allow him or her to retain as much control as possible over his or her finances. 

Alternatives and Legal Options

Helping Out With Money Management

There are several legal options for older people who need assistance in managing their finances or who may need assistance in the future. These include joint checking accounts, powers of attorney, living trusts, appointment of a representative payee, conservator-ship, and guardianship. Each alternative has advantages and disadvantages that must be weighed in light of your specific family circumstances. 

Joint checking accounts. Joint checking accounts provide an easy way to sign checks and pay your parent's bills while your parent keeps a sense of control, particularly if he or she retains the checkbook. A joint account can be established by putting your name on the signature card as an additional authorized signatory or by having your name added on both the checks and signature card as joint tenants with right of survivorship. Since such a designation means the joint owner will have as much access to the account as the parent, a family member who would be tempted to convert the account to his or her own benefit should not be designated. 

A joint account with right of survivorship means that when one owner dies, the account automatically belongs to the survivor. Other family members would not receive any of the assets in the joint account. This designation supersedes any bequests written in a will. For example, Mrs. Jones wrote in her will that she wanted the balance in her $10,000 checking account to go to her daughter, Susie. Unfortunately, the assets didn't go to Susie because Mrs. Jones had the account in joint tenancy with right of survivorship with her son, Johnny. If Mrs. Jones had the account in her name only, Johnny would not have received the $10,000. Instead, the money would have gone to Susie as indicated in the will of Mrs. Jones. 

If not properly handled, a joint account can present complications in terms of taxes, eligibility for government benefits and disposal of funds at death for either party. Explore the full legal consequences of a joint tenancy with an attorney before selecting this option.

Representative Payee. If disability makes it hard for a parent to manage pension or public benefit income, an adult child, other relative or caregiver may become a Representative Payee to receive and disburse funds for the disabled person. Social Security, Veterans Affairs and other public agencies may appoint a representative payee if a beneficiary is unable to manage funds. Government agencies prefer to appoint a spouse, another relative such as an adult child, or a friend. 

To arrange for representative payee status, contact the appropriate agency for an application form and instructions. Medical confirmation that the older person is not able to manage his or her benefit payments is required. The benefit agency provides instructions on how the funds are to be held, accounted for, managed and disbursed.

Power of Attorney. A power of attorney is a written document in which a person (principal) gives another person (attorney-in-fact) legal authority to act on his or her behalf in financial transactions. Having confidence in the person to whom a power of attorney is given is critical. Since no one supervises the person who has power of attorney, abuses are possible. 

A person may give either a general power of attorney or a special power of attorney. A general power of attorney is a broad grant of power for the person named as the attorney-in-fact to perform any financial transactions on behalf of the principal that the person could do himself or herself. A special power of attorney is limited in scope, authorizing the designated person to do a limited number of financial transactions or one transaction such as withdrawing a specified sum of money from a savings account to pay bills. A power of attorney can be granted to last for a specific period of time such as a month, or for an indefinite period of time. In either event, the principal retains the right to revoke or withdraw the power at any time upon notice of intent to the attorney-in-fact and other interested persons. The power of attorney automatically terminates on the death or mental incapacity of the principal.

A durable power of attorney does not terminate if the person granting the power becomes mentally incapacitated. A durable power of attorney can also be written so that it "springs" into existence only if and when a person becomes incapacitated or incompetent, as diagnosed by a physician, and is unable to direct his or her own affairs. However, such a "springing clause" must be defined very clearly or it may not be honored by financial institutions. (For more information on power of attorney, see the MontGuide MT 199001 HR, Power of Attorney.)

Living Trust. A living trust is another way a person can assure management and protection of assets if he or she becomes incapacitated in the future. A trust is an arrangement whereby designated assets are transferred from one person (grantor) to another person (trustee) who holds and manages the assets for the benefit of the beneficiary. The grantor, trustee, and beneficiary may be the same person or they can be different. The trust agreement contains specific instructions about the management and distribution of the assets to the beneficiary. For example, a mother may name herself as trustee of the assets until she becomes incapacitated, at which time her daughter will take over the duties of trustee. 

Unlike a will, a trust is not subject to probate and does not generally become a matter of public record. Get an attorney's help in setting up a trust to protect every-one's interests. The person drafting the living trust should understand restrictions on Medicaid eligibility for beneficiaries of living trusts, particularly if there is any possibility the person may need long-term care. (MontGuide MT 199002 HR has further details on living trusts; MT 199511 provides information on Medicaid and long-term care costs.)

Conservatorship. A conserva-torship is a court-ordered protective relationship whereby an individual is appointed to manage another person's financial affairs after that person has become unable to do so. An attorney must file a petition with the court and a judge decides if the older person is legally competent. Other rights such as the right to vote, to marry or to write a will remain intact. The conservator is responsible to the court and must make an annual accounting. 

Guardianship. A guardianship is a court-appointed protective arrangement for a person found to be incapacitated and in need of someone to oversee his or her personal freedom of movement and decision-making so that essential requirements for physical health and safety will be met. Montana law defines an incapacitated person as "anyone who is impaired by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication or other cause to the extent he or she lacks sufficient understanding or capacity to make or communicate responsible decisions concerning his/her person."

A guardianship may be used only as is necessary to promote and protect the well-being of the incapacitated person. A limited guardian has the rights, powers and duties specifically listed by the court.

Summary 

Further Information

Annuities(199213HR)

Custodial Accounts for Kids Under Age 21 (199910HR)

Designating Beneficiaries through Contractual Arrangements (199901HR)

Dying Without a Will in Montana: Who Receives Your Property? (198908HR) 

Estate Planning: Getting Started (199505HR)

Estate Planning for Families with Minor Children (199117HR) 

Estate Planning: Property Ownership (198907HR) 

Estate Planning: Wills (198906HR) 

Federal Estate Tax (199104HR) 

Gifts: A Transfer Tool of Estate Planning (199105HR) 

Lending Money to Family Members (199323 HR)

Letter of Last Instructions (198904HR) 

Life Insurance--An Estate Planning Tool (199211HR)

Medicaid and Long-term Care Costs (199511 HR)

Montana Estate Tax (200105HR) 

Montana Rights of the Terminally Ill (199202 HR)

Power of Attorney (199001HR) 

Non-probate Transfers (199509 HR)

Probate(199006HR) 

Revocable Living Trusts (199612HR) 

What is a Personal Representative? (199008HR) 

Who Gets Grandma's Yellow Pie Plate: Transferring Non-Titled Property (MT 199701 HR)

Senior and Long Term Care Division
111 N. Sanders, Room 210
Helena, MT 59604
Toll Free: 800-332-2272
www.dphhs.state.mt.us/sltc

Area Agency on Aging
Toll Free: 800-551-3191

American Association of Retired Persons
601 E Street NW
Washington, DC 20049
202-434-2277
http://www.aarp.org/

References

Fanning, D. "Waiting for the Dough." Worth (February/March 1992), 87-91. 

Granovsky, N. "Money Talks for the Sandwich Generation." Texas Agricultural Extension Service, May 1989. 

Metzen, E. "Intergenerational Equity: Essential Ingredient for a Cohesive Society." Journal of Home Economics 83:4 (1991), 22-27. 

Rosenfeld, J. The Legacy of Aging: Inheritance and Social Disinheritance in Social Perspective. Norwood, N.J.: Ablex Publishing Co. (1979).

Schmall, V.L., and Nay, T. Helping Your Older Family Member Handle Finances. Pacific Northwest Extension Publication PNW 344 (August 1989), 1-7. 

Simon, R. "How to Talk to Your Parents About Money," Money (December 1991), 145-153.

U.S. Department of Commerce, Economics & Statistics Administration, Bureau of the Census. Statistical Abstract of the United States, Vol. 12. (1991), 12. 

U.S. Senate. Developments in Aging: A Report of the Special Committee on Aging, Vol. 3. (1987), 29. 

Acknowledgment