When Margie Billian’s father was passing in early 2013, she was not only distraught; she was also laden with a great deal of stress.
“I did not know anything about his finances,” she says. “He would never, never share them with us. He told me his passwords on his deathbed.”
Within just a few weeks of being diagnosed with cancer, her father died on January 21st of that year. While mourning, Billian had to sort through her father’s tax records when the IRS audited his business. Because her mother was battling dementia, Billian was the only one to take on this task.
“When I told my mom, she said, ‘Oh, honey. Your Daddy was so honest.’ My father was indeed very honest. But we had trouble finding his stuff. He did not plan on dying in three weeks. This was the most horrible time of my life.”
A year later, Billian’s mother passed, too. It took two years, but she’s finally been able to navigate both their estates and resolve the associated financial issues. It’s been a struggle, and one Billian says could’ve been easily minimized with a little more preparedness.
“I don’t want anyone to ever go through this,” she says. “We never know when we’re going to pass. We need to have our affairs in order.”
It’s not a fun conversation to have with family. No one wants to project their death. But being proactive about discussing and organizing finances will allow you and your family to mourn in peace when that time comes.
Tragedy aside, it’s just useful to be on the same financial page with your family in general. Our financial moves can affect loved ones more than we realize. Next time you’re getting together with your family, consider opening up the dialogue about financial preparedness. To get started, here are a few points for discussion.
Financial Goals For All
In an ideal world, family members would be aligned in their financial outlook and on the same page with their goals.In reality, this is unusual.
“There will be spenders and savers in every family,” says Laurie Itkin, financial advisor and author of Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment. “It is rare that all family members have the same outlook.”
This is precisely why it’s important to have conversations with your family about money. You may be surprised at their financial philosophies, what their goals are, and how those goals affect you. Itkin, obviously a saver over a spender, offered a personal example.
“I recall my mother informing me that she expected to run out of money, and that I would be responsible for ensuring she lived in a nice old-age home when she was no longer able to care for herself.”
In this case, Itkin’s mother passed away suddenly, and this was never a bridge Itkin had to cross. But many families struggle with similar issues. Perhaps you’re offering financial assistance to an adult child that doesn’t realize you’re struggling to meet your retirement goals. Maybe you are an adult child, and you’re financially stable, but your aging parent hasn’t devised an adequate retirement plan. A parent may not realize or consider that their own lack of retirement savings could affect your plans.
Whatever the scenario, an open discussion about financial goals can prevent these issues, or at least minimize their effect. In having these discussions, you may not end up on the same page, but knowing what to expect can at least prepare you for how you may need to adjust your financial goals.
The topic of retirement planning deserves a bit more discussion, as it’s become a pretty widespread issue in general. It may very well be a crisis.
The National Institute on Retirement Security (NIRS) released a report titled, The Retirement Savings Crisis: Is it Worse Than We Think? The short answer to their somewhat rhetorical question: yes, probably. They write:
“The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.”
The chart below illustrates their findings. Even if we remove from the equation those households that don’t have retirement accounts, we’re still looking at only $100,000 in savings for those nearing retirement.
Considering what’s recommended for retirement, these numbers are staggeringly low. Conventional etiquette tells us it’s rude to ask about money issues; but the retirement crisis begs a discussion. Communicating with your parents about where they stand with retirement is important not only for their well-being, but also for the sake of your own financial planning.
Also, if your parent is working with a financial advisor, Itkin recommends meeting with them yourself.
“One or more adult children should meet with their parent’s financial advisor to ensure that the parent isn’t being taken advantage of. Elder financial abuse happens more often than we’d like to think.”
Personal Capital has financial advisors in San Francisco and Denver, and are always available over the telephone or video conference call if you need help during times of transition.
Preparing for Elder Care
Along those lines, it’s also important to discuss the future beyond retirement.
“Conversations about wills and trusts can be awkward, but necessary,” Itkin says. “Illness and death can happen unexpectedly. Children need to be prepared if they are going to be expected to care for aging parents. How will that be financed? Is there long-term care insurance or enough assets to cover such care?”
While these conversations are unpleasant, tragedy happens. Having to plan finances in the midst of that tragedy can make it an especially painful event. “Better to get the issues out in the open before death occurs,” Itkin says.
She adds that this can be crucial among families with stepparents and stepchildren. Having a plan of action in place can prevent a great deal of conflict in a time stress or mourning.
In having these conversations, adult children should know the following about their parents’ finances:
- What’s included in the will
- Who will be executor of the will
- What end-of-life directives are in place
- What kind of government assistance they’re receiving
- Monthly expenses
- Where financial records are kept
- How their health insurance works
- If they have long-term care insurance
Related: A Primer On Estate Planning (https://blog.personalcapital.com/financial-planning-2/primer-estate-planning-using-trusts/)
Providing Assistance to Adult Children
Many parents also struggle with the issue of financially assisting adult children. In fact, a Forbes study found that almost 60 percent of parents are providing some sort of financial help to children who are no longer in school. Housing is the most common form of assistance, but a large percentage of parents also help out with living expenses, transportation costs and even spending money.
There are varying schools of thought on this matter. But, for the sake of this topic, the bottom line is that parents should communicate about the nature and expectations of any type of assistance. Whether it’s cosigning a loan, or simply lending money, both parent and child should have a clear understanding of what the assistance entails.
Set guidelines and prepare for all possible outcomes. How long will the child live at home? Can they cut back on any expenses to minimize a loan? How will the loan be repaid? It’s also important to have in-depth discussions about each others’ financial goals and habits. Especially considering student debt statistics, it’s understandable that parents want to help their children. But communicating with them about their own goals, and how assistance affects those goals, can help the family be more financially united and aligned.
Discussing finances with family members might not be the easiest topic, but considering the statistics, open communication about finances is more important than ever. The discussion might be slightly awkward and will likely take time from initiation to completion. Like all investments, it’s best to focus on the goal – an easier transition for loved ones – and to work towards it together.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.