Ryan Noble, CFP®
As our parents age, the need to assist them with their finances often becomes a reality. This process can be emotional, as it involves sensitive information and a shift in roles. Here are four steps to help you navigate this journey with empathy and efficiency.
1. Initiate the Conversation with Sensitivity
Starting the conversation about finances can be daunting. Approach your parents with empathy and understanding. Avoiding this topic can lead to unexpected challenges down the road. Parents, regardless of age, desire to leave their children and grandchildren well-positioned. This can be a powerful motivator for parents to get past the initial inertia with bringing their grown children into their financial circle. An open dialogue helps avoid unnecessary complexities.
2. Gather Essential Financial Information
Once your parents are comfortable, begin gathering essential financial information. This includes bank accounts, investment portfolios, insurance policies, and any debts. Create a comprehensive list and ensure you have access to necessary documents. Often, it is simplest to create a master worksheet documenting details of each item (e.g., institution, contact person or representative, registration type/ownership, account number, beneficiary, balance, death benefit, etc.).
A key element is to identify the beneficiary designations on all applicable assets. Consider taking a “trust but verify” approach with this step. There are a multitude of reasons why a beneficiary is incorrect or missing at a financial institution, so using one’s memory for this task should be used as the last resort. An incorrect or missing beneficiary can lead to major family distress. This includes all assets, as bank accounts, real estate, and vehicles are often overlooked. Conduct a fire drill: if your parents are gone, does every asset have specific instructions on who or what charity will inherit them? If not, this is an area of urgency.
3. Establish Legal Documents
A common misconception is that a will effectively handles all estate planning issues. A will should be viewed as a safety net and ideally little used as it will not prevent probate. Probate avoidance or minimization should be a goal for the family, as it involves ample time and money. To effectively co-manage your parents’ finances, you may need legal authority. This often involves setting up a durable power of attorney (POA). Consult with a legal professional to understand the best options for your situation, as specialized trusts or other legal instruments may be appropriate. Ensure your parents fully understand and agree to this step, as it involves significant trust and responsibility. It is important to address this step early in the process, as there may come a time when your parents’ capacity to establish such documents has passed.
4. Organize and Simplify Finances
Help your parents organize their finances to make management easier. This might involve consolidating accounts, setting up automatic bill payments, and creating a budget. Simplifying their financial landscape can reduce stress and make it easier for you to assist them. Keep them involved in the process to ensure they feel in control and informed. Over time, consider having your parents utilize the same banking, insurance, investment, and legal institutions as you.
Conclusion
Throughout this process, it’s crucial to be mindful of the emotional aspects. Your parents may feel vulnerable or resistant to sharing sensitive information. Validate their feelings and provide reassurance. Consider using your own trusted financial professional as a sounding board in the process. The financial position of your parents could and often does impact your own financial plan, so it is an important topic to discuss with your advisor. Open dialogue and collaboration will lead to reduced anxiety around finances and the best outcome for the family.
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Investment advice, financial planning, and retirement plan services are provided by Prosperity Planning, Inc., an SEC registered investment advisor. The information contained herein, including but not limited to research, market valuations, calculations, estimates and other material obtained from these sources are believed to be reliable. However, Prosperity Planning, Inc. does not warrant its accuracy or completeness. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in any trading strategy. If an offer of securities is made, it will be under a definitive investment management agreement prepared on behalf of Prosperity which contains material information not contained herein and which supersedes this information in its entirety. Any investment involves significant risk, including a complete loss of capital and conflicts of interest. The applicable definitive investment management agreement and Form ADV Part 2A will contain a more thorough discussion of risk and conflict, which should be carefully reviewed before making any investment decision.
