Parents and Children – the Money Dynamic
Much of the furor over parent-adult child relations when it comes to money has focused on the adult child who receives funds from his or her parent. Just as important is the reverse situation, parents who run out of funds. It is not hard to see the causes. As parents live longer and some of the employer plans they depended on to help them through retirement are phased out or eliminated, it can become more difficult to sustain a reasonable life style. Some seniors have saved through their IRA’s and 401(k)s and have substantial benefits. Others either did not have the opportunity or did not expect to need their savings for such a long time.
Elderly widows who did not work outside the home, in particular, may have difficulty. Having previously received income from Social Security for their husbands and themselves they now receive only for themselves but at the higher rate. Depending on the options chosen for pension they may or may not receive a portion of their husband’s pension on his passing.
Issues are compounded by illness. If a spouse had a long and debilitating illness, the couple may have dipped into life savings to pay medical bills or borrowed against the house or taken out a reverse mortgage or taken out credit card debt.
There is one positive way that these problems can be handled before they become serious. That way is to share information.
I understand that many parents are reluctant to share their finances with their children for many reasons. One of them is trust. If there is a secure long term trusting relationship between parents and children, this should not be too difficult. If all of the family works together considering the best interests of their parents, plans can be developed for the difficult times. They may not be perfect but they can make life easier.
Here is what would happen in an ideal world.
In an ideal world, a parent would take a trusted child or more than one into her or his confidence and explain what assets he or she has and what debt, including mortgage debt is outstanding. Parents would establish a readily accessible emergency fund that would be used for unexpected expenses including unexpected medical expenses. If there is long term care insurance, they would have remembered and planned for co-pays and elimination periods. If they did not have long term care insurance, they would put more funds aside. The family would work together. Everyone in the family would know who would be handling financial and health matters if Mom or Dad suffered a health crisis and they would be in agreement.
Parents would give first their spouse if he or she is able a carefully drafted financial power of attorney and health care power of attorney. There would be trusted successor agents under the power of attorney.
In the real world, parents often fail to share their financial information with their children. They may assume that they will never get sick or, if they do, matters will be taken care of somehow. They often do not have a financial or health care power of attorney. Records are rarely in one place and, if they are, the children do not know where they are. Credit card debt and mortgages, once almost unknown to many seniors, are more common now.
Often the first time serious consideration is given to finances is when a parent needs extended care either at home, in assisted living/ personal care or in a nursing home. Then it is clear that additional measures need to be taken.
In a perfect world at least at this point parents and adult children will go for help to develop a plan to pay for extended care. Unfortunately there is still more government help in skilled care than for at home or assisted living care and many people do not seek help even when they need it. This means there needs to be a plan.
Plans might involve a move in with children or for a child to move in with parents or, where there is substantial equity in a home and the parent intends to stay there indefinitely, a reverse mortgage, or accessing certain funds and not others for care, or borrowing from children for a “private reverse mortgage” that is paid back on sale of the house.
Answers may not be what you expect. There needs to be a plan ahead.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.