Caring for Aging Parents – How to Financially Prepare
It is increasingly common for middle-aged individuals to provide some level of care for their aging parents. Whether a gradual or sudden decline in health, this can leave both the parent and the adult child unprepared for this new stage of life. Every situation will come with its own challenges, but certain financial steps can often be taken to reduce common stressors and increase the success of the care plan.
Starting the Conversation
It can be difficult to broach the subject of future care. Many parents resist the topic and many potential caregivers do not feel equipped to lead the conversation. A few guideposts can be useful:
- Begin with the parents’ goals and desires: It is easy to jump right into the details – What can you afford? What makes the most sense for the rest of the family? What services provide the best care? – these should be discussed once the parent’s desired framework is understood.
- Start the conversations early: This allows you to be proactive in planning, rather than reactive in a time of stress.
- Remember there are many parties involved: Not every topic needs to be guided by the primary caregiver. Other family members, medical staff, and financial professionals can all provide support in their respective areas. Bring these parties to the table when appropriate.
Exploring the Details
It is important to understand the full financial picture of the parent. This will allow any necessary adjustments to be made beforehand and provide an easier transition to potential care. These details should include:
- The parent’s financial assets: There may be reservations about sharing, but it can be very difficult to step into the role of caregiver without knowing the specifics. Create a list of bank accounts, investments, and liabilities. Assets are often spread out across several institutions, making it hard to access when needed. It will only become more difficult to track down these details as the parent ages.
- Cash flow and expenses: Annual expenses will change drastically as care increases. It is not as simple as “Begin with their list of current expenses and add the cost of the assisted living facility.” Healthcare costs generally increase while other areas decrease, such as vacations or eating out. Many choose to sell the former residence if the parent moves into a healthcare facility – this can significantly reduce expenses while providing a boost to the liquid financial assets.
- Review insurance policies: Long-term care is typically the most relevant, but do not overlook other forms of insurance. A review of the Medicare supplemental plan is important. Life insurance can also be an important factor to consider for a surviving spouse.
- Revisit the estate planning documents: Not solely the wills and trusts, but documents such as the Power of Attorney for Property or Healthcare. Understand who will have the power to act on behalf of the individual if needed.
Create the Roadmap
Use the details of the parent’s financial situation to provide a framework for care. The lens must be long-term and anticipate the ‘what ifs.’ This allows all parties to understand where they are now and how they would choose to proceed in any given health event.
- Have the appropriate time horizon: The care plan often involves a variety of escalating services to meet the healthcare needs of the parent. Time and expense demands may both increase – it is recommended to conservatively anticipate higher expenses down the road.
- Again, consider the desires of the parent: You may be faced with decisions such as ‘Should we provide in-home care at a cost greater than an assisted living facility? What impact will this have on the longevity of the assets?’ This is an appropriate time to loop in financial professionals.
- Simplify wherever possible: This can include consolidating banks and custodians, establishing bill pay, or shifting investment responsibilities. I have yet to see a time when someone regrets simplifying their financial situation – it frees up capacity and allows one to focus on what is most important.
- Make changes gradually: Adjustments may be necessary but should be done in a non-disruptive fashion to the parent.
Lastly, be proactive in financial planning. There are many ways to create positive results from a difficult situation. There can be adjustments to the estate plan to reduce future estate taxes, shifting of assets to better capture a potential step-up in basis, or considering techniques to pass along more efficient assets to the next generation. These conversations should also occur sooner rather than later.
Please feel free to share this article with anyone who may find it useful. If applicable, I encourage you to connect with your JMG advisor to discuss an appropriate financial plan for an aging parent.
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