How to discuss finances with aging parents

With the holiday season upon us, I can’t help but think about the countless family gatherings that will occur between now and year-end. Time will be spent sharing a meal, reminiscing about childhood memories, watching football, playing games, and catching up on how the year has gone. I wonder though, how many families will take these gatherings as an opportunity to discuss their finances?

Why are finances such an uncomfortable topic of conversation for families? Are we embarrassed by our spending habits? Perhaps we’ve adopted the “it’s none of your business” mentality? Maybe we are financially “well off” and don’t want to disclose that fact to relatives?

Regardless, I believe the upcoming gatherings present an excellent opportunity for families to have an important conversation. Specifically, I want to address the importance of adult children being aware of their aging parents’ financial situation and hopefully provide some ways to lessen the anxiety of approaching them about the topic.

Before providing some practical ways to begin this conversation, let me explain WHY this should be a high priority.

1. There are lessons to learn. No matter where your parents find themselves financially, there are learning opportunities to be had. Perhaps they’re “well off?” Ask about the habits they likely formed early in life to put themselves in their current position. Maybe they’re in “bad shape?” Carefully consider the choices they made that may have resulted in missed opportunities or poor investment outcomes. Either way, you’ll take something away from the conversation to help you plan for your future.

2. It will lessen future confusion. Adult children are frequently listed in legal documents such as Wills and Powers of Attorney. These documents, in part, exist to provide instruction should the parent pass away or become incapacitated. If your name appears in one of these documents, it’s very important you know so, before a triggering event such as death or disability occurs! Why? Because it may lessen confusion during a difficult time.

For example, if your parents list you as an Agent in their Financial Power of Attorney (sometimes called a Durable Power of Attorney), they expect you to make financial decisions on their behalf should they not be able to do so. Knowing this in advance will allow you to proactively ask questions about their desires, rather than having to guess what they want when they can’t speak for themselves.

3. It may preserve assets. Proper insurance and/or estate planning may enable families to preserve assets when they’re passed from one generation to the next. Keeping in mind I don’t sell insurance, let me share an example of what asset preservation may look like by focusing on long-term care insurance. Long-term care insurance may serve as a way to pay for future home health care, assisted living, or nursing home expenses. I’ve witnessed parents who are “well off” be reluctant to purchase long-term care insurance due to its cost and the mindset they’re unlikely to deplete ALL of their assets should they incur such expenses. In other words, they were confident they would have some assets to leave behind to their children even if they had a prolonged stay in a nursing home and didn’t see a reason to insure part of this potential expense.

While this was likely the case, an initial conversation about finances between the parents and children paved the way for additional discussions about preserving family assets for multiple generations. The parents understood the children were working hard to save for their own retirement and were not relying on an inheritance. The children understood their parents were “well off” and would not likely need financial assistance from them later in life. Both parties agreed they’d prefer to preserve the parents’ assets than pay more than is necessary towards long-term care expenses.

As a result, a funny thing occurred. The children actually offered to pay for the parents to purchase long-term care insurance! While this gesture was greatly appreciated, the parents ultimately decided to buy the insurance using their own assets.

This is an excellent example of a family developing an asset preservation plan for multiple generations. While there are no guarantees the long-term care insurance will enable the parents to pass along more assets to their children, both parties saw it as a wise financial planning opportunity.

Now that I’ve shared some reasons WHY you should have this conversation with your parents, let me turn to some practical ways HOW to begin.

Move Slowly
If you’ve never had a conversation with your parents about their financial situation, don’t expect to learn everything in one setting! Take your time. Perhaps the best way to begin is to ask a simple question such as “Mom and Dad, do you have a Will and/or Powers of Attorney?” If the answer is yes, ask if you have any responsibilities should something happen to them. If so, make sure you understand your responsibilities and where to find each document that outlines them.

Talk About YOUR Situation
The simple questions above may enable you to dive deeper into your parents’ financial situation, but if not, don’t get frustrated. Rather, take the time to open up to them about YOUR finances. Did you recently execute a Will? Tell them! Participate in a 401(k)? Let them know! Saving for your kids’ college expenses? They’ll be excited to hear that!  When they see that you are serious about your personal finances, they may be more inclined to share some of their own details.

Keep Them In Control
Your parents may be reluctant to open up if they feel you’re too intrusive or looking to take control. There are times when more direct intervention is necessary, however, that isn’t the focus in this post. Use your conversation(s) as an opportunity to better organize your parents’ finances. Ask them if they have a central list of accounts, documents, and trusted advisors (e.g. attorney, accountant, etc.) to turn to should something happen to one, or both, of them. If they do, ask where you may find that information should it be necessary. If not, encourage them to take some time to create such a document, for their benefit and yours.

Discussions with your parents about their finances don’t need to be awkward or intrusive. When you approach them, demonstrate that you’re doing so with the right motivation and you’ll be more likely to have a productive conversation. It’s important your parents know they may count on you when they need you most. It’s equally important for you to begin to understand their situation and desires so you aren’t forced to make a decision during a difficult time. My hope is you are now more confident to discuss finances with aging parents!