Even when everyone is on the same page, a family is in touchy territory when adult children must begin to manage their elderly parents' finances. After all, the matter is fraught: It's about mortality, values and life savings. Just discussing it can unearth long-buried sibling rivalries.
But the shift can be less stressful if everyone takes it slow, seeks advice and remembers that helping to maintain a loved one's well-being is the primary goal.
It's essential to formulate a plan (and a backup plan), and then put it in writing with the necessary documentation, including power of attorney, a will and a health-care directive, according to Steven Kolinsky of Kolinsky Wealth Management in Woodcliff Lake, N.J. This is the stage of life where finances and health intersect.
Here are six important steps in managing one of the most difficult transitions a family faces.
1. Knowing the right time to talk
There is no specific age or time to start the discussion, as it can depend on physical and mental health, how much wealth will be transferred, the complexity of estate planning, willingness to cede control and whether a family business in involved. It can come up naturally, for example, when an aging parent asks for assistance with account or falls victim to a scam.
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"When they are having trouble understanding bills and writing checks it might be time to step in, slowly, at the ground level," Kolinsky said adding that if parents initiate a discussion, the ideal time would be when they are in their 70s and still healthy.
2. Framing a sensitive subject
It's important not to push too hard and try to accelerate the transition; it's more about comfort than expediency.
"This is a sensitive area that needs to be handled with thought, caring and tact," said E. Richard Baum, a CPA and attorney with Anchin Block & Anchin in New York. It's important that seniors don't feel their importance is being diminished or that they are being deemed incapable of handling their affairs, he said.
Children should position themselves as wanting to learn about their parents' finances to be helpful from a planning and security perspective. They might also offer to take on some of the duties involved with their parents' money matters.
"The shifting of responsibilities should be viewed as a reward rather than a penalty and recognition that it may be time for the children to help their parents in certain areas," Baum said.
3. Building trust
After consent, the first step is to have the child's name placed on the parent's checking account. Transparency and communication are the best ways to built trust and ensure the elders' comfort with the situation.
When a complicated issue such as estate planning arises, it may be time to enlist professional help.
Kolinsky and his son, Jason, also a wealth manager, agree that while the Web can be a valuable financial tool in keeping older parents informed, it's too much to expect less computer-savvy seniors to visit websites to monitor activity. "For now, the yellow pad can be best," Kolinsky said.
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Mint.com, which helps users compile several accounts under one password, is a big time-saver, according to Jason Kolinsky. "If an elderly mother intended to write a $100 check and it was cashed at $10,000, the child would see that," he said.
4. Sibling responsibilities
In many cases, one sibling acts as point person and keep others in the loop, though it's not unusual for those with different skill sets to handle specific tasks.
For seniors already working with an adviser, that professional may suggest that children begin attending yearly reviews, in person or by phone, to know basics such as the location of documents, said Tad Hill, president of Freedom Financial Group. The conversations then can move from "here's what we've done and where everything is" to "how do we handle the current decisions that need to be made"—with the next generation part of the process, he said.
5. Maximizing efficiency
More advanced strategies include a parent giving co-ownership of a home to an adult child to facilitate estate handling the $5 million lifetime gift-tax exclusion.
Kolinsky suggested managing assets to avoid the five-year look-back for qualifying for Medicaid, while Jason Kolinsky is a big proponent of long-term care. With costs and longevity increasing, it's a good way to protect assets. He recommends that clients look into it in their early 50s rather than later, when it will be more expensive.
6. Maximizing an inherited IRA
One particularly important detail that speaks to how vital it is to keep paperwork up-to-date is designation of an Individual Retirement Account beneficiary. The IRA must go through probate if the beneficiary is a trust or an estate. But a person will have access to the funds much sooner; can choose immediate, five-year or lifetime distributions; and will have options on deferring taxes.