You love to see your children growing. You want to give them the best in this world, you want to accomplish your dreams through them….that’s why you are more concerned about your investments related to children and pay very less attention to your own retirement savings. Right? That’s what your parents did when you were young. Many of those who were in government jobs might not be facing financial issues, as their jobs were pensionable and thus are getting regular and comfortable pension these days. They are covered under government health schemes so may not be so worried about rising medical costs. But you may find your parents in a financial fix if they had used all there savings to provide you with best education, to build a comfortable house, took loans to help you settle down in your life etc.
Have you ever thought of paying them back? Many people come to me for designing a financial plan and none of their goals had anything to do with their parents. Every one wants to buy a big car, go on an international vacation, provide good education to their children but I have not found anyone saying that they want to take their parents on a holiday, want to support parents in pursuing their hobbies etc. Don’t you think they deserve more than your children? Besides this, even if your parents are well off you should be aware of some financial issues that will help you in managing the wealth and fulfilling the wishes, according to their wishes.
A proper thought of financial planning can help today’s so called “Sandwich Generation” who are juggling to manage between their child’s future, own retirement and also taking care of the needs of their parents. Few discussions, understanding and arrangements can resolve the complete issue.
Talk to them:
This is the first step and probably the most difficult one. You have to have a general idea about their wishes and financial arrangements to help them. It’s almost inevitable, that at some point your parents are going to need your help with financial or healthcare issues. This can be difficult in families where the subject of money is always a taboo but it is not advisable to wait for the crisis. Some of the things that one should know about parents are:
a) Try to know about their wishes, hobby, any pending desires, any help they require etc.
b) Their monthly expenditure – Try to find out personally, as to how the household is being managed. Ask permission of your parents to examine their cheque book, bank accounts, credit card statements etc.
c) Health issues and previous health records – Try to find out whether they need any caretaker or driver, if their health does not allow them to work/drive.
d) If your parents work with financial and legal professionals, ask for a list of their names, addresses and phone numbers.
e) Ask about their financial accounts like bank, brokerage, and mutual funds etc. If they are uncomfortable with giving you the details ask them to write this info in any notebook, so you can access the information whenever you need them.
f) Ask for insurance policy documents if any, like health, life, accident, critical illness, car etc. Title deeds to various non-movable properties, loan documents, mortgage, if any.
g) Ask them about whether they have written any Will or Power of Attorney until now.
No one is immune from the cares and potential pitfalls that come with caring for your parents. Also nobody likes to plan ahead for this. But, I promise, you will be so grateful you did it. The more you know about your parent’s wishes, the better able you will be to execute them on their behalf. There are also many sensitive issues, which your parents might not be willing to discuss, but you should be able to break the ice. Such communication is key to ensuring that your parents live their lives without money worries, and that their estate planning wishes are followed. Just take them into confidence, that you are doing this for a better future and to avoid any crisis. And once they are ready, do not speak or suggest a solution. “Just Listen”. You need to have deeper understanding of their feelings and understand their wishes.
Some issues are common, and some involve specific attention and arrangements. I will list out some of the actions that one must take, which will help in making special arrangements for your parents.
- Convert the single accounts like bank account, demat account of your parents to a joint account. Also ask them to review the nominations.
- Buy them medical insurance – This will help them more in case you are not living with them. Even if they are insured by your employer’s provided insurance still it is advisable to get them separate coverage. This will help you in your tax saving also.
- Start giving them some monthly payments. Even if they don’t require it, try to start a parent’s fund kitty and keep on putting some amount every month for parent’s welfare. Adjust your cash flows accordingly. This fund will help you to manage emergencies in a better manner.
- If you are not living with your parents and also have no plans for that in future and your parents are also reluctant to move to your place, then you need to make some future living arrangements for them as per their wishes. You can arrange for a caretaker, a family doctor etc. for them.There needs to be someone to check on an older person in an emergency. Put the plan in writing including phone numbers of friends or neighbors whom they can call for help. In addition, you can feed some important numbers on the speed dial list of their mobiles.
- Ask your parents to write a proper Will to avoid any future issues. Write your own Will and make some arrangements for them out of your wealth if you predecease them.
- Creation of 100% specific beneficiary Trust for parents: Such a Trust can be settled by you or your parents themselves. It has many advantages like supporting parents who do not have any sizeable personal income. Money can be managed more efficiently when the parents are old and have difficulty in the matter of signing bank papers, documents etc. Living trust is an arrangement in which a person transfers ownership of their assets from themselves to another entity, the Trust. Existing assets of parents can also be shifted into it. Thus, your parents can set up a Trust with their own assets and retain complete management and control of the assets by acting as their own trustee, or they can designate someone else as trustee to manage the assets for them. It is called a “living trust” because it is created during the settlor’s lifetime. In the event that they become incapacitated, the Trust can provide for an alternate trustee, whom they have selected, who will manage the Trust funds for them. The Trust document should spell out how the determination of incapacity is done.
- Get all financial documents in order. All insurance policies, mutual funds, property investments, if any.
- It is always advisable for people in such an age groups to have most of money lying in liquid investments like bank fixed deposits, debt mutual funds etc.
- Take professional help, where required – A good financial planner can help you in all the arrangements related to Wills, Power of Attorney, investments and insurance.
If it becomes necessary to take over the administration of your parents’ finances, it is important to respect their rights and wishes. Give them as much control as possible. Keep their money separate from yours. Involve them as much as possible. Keep them informed.
Yes, bringing up this subject with your parents now may be awkward, but it is important and will benefit both you and your parents if you ever have to step in to help them manage their finances. I understand that it is easier said than done but not thinking about it could lead to financial troubles some day.
This article has been written for “The Financial Planners Guild, India” www.fpgindia.org