WHEN YOUR PARENTS' MONEY BECOMES YOUR WORRY
Looking back, it was the small financial mishaps that provided the first hints of his mother's eventual decline, says Douglas Drake, an art dealer in New York City. Years before she suffered her first stroke and her arthritis became debilitating, Drake's mother began giving huge tips to drivers who took her on errands and was persuaded to loan money to a handyman who never repaid her. But Drake didn't try to stop her erratic financial behavior. At that point, more than a decade ago, she still seemed as independent and vital as ever. "I felt she knew what she was doing," he says.
But by the time her health deteriorated and Drake had to take over his mother's finances, much of the damage had been done. Now 87 years old, "completely confused," and living in a nursing home, she is fast burning through all her assets. "If I had managed better, she wouldn't be feeling that pressure," Drake says. "I don't feel entirely free of guilt." Plus, at 51, he doesn't have a large nest egg himself and can't look forward to much of an inheritance.
While tales abound of greedy offspring exploiting aging parents for money, a bigger problem may be that adult children often don't get involved enough in their parents' finances, says Kate Wilber, an assistant professor at the University of Southern California's Andrus Gerontology Center. Money is never an easy topic for families to tangle with. And given the obvious conflict of interest adult children may feel when inquiring about their parents' assets, it's tempting to put off such conversations until a problem arises. Tempting, but unwise.
"FINE LINE." Small slipups--lost utility bills, unpaid insurance premiums, uncashed dividend checks--can have major consequences for the elderly. Even worse, your parents could be victimized by con artists who prey on the aged.
Luckily, there are lots of ways to help your parents stay out of financial trouble before it occurs in the first place. You'll have to start making major financial decisions together, monitor your parents' day-to-day finances for signs of confusion, and get to know their most trusted advisers. It also means making money and estate planning a familiar topic long before it seems necessary. "To the extent that plans can be made early, it really saves a lot of money and anguish," says Allen Jones, Merrill Lynch's director of individual financial services.
Some people become increasingly unwilling to share financial information as they age. And if your parents slip up financially, they may be too embarrassed to turn to you for help, or they may fear you'll take over completely. "Too often families go in and overreact," says Ruth Cohen, president of Creative Care Consultants in Kansas City. "You want to walk that fine line of not eroding that person's independence but not leaving them vulnerable and exposed," says Wilber.
Don't be afraid to ask your parents if they need help with their daily finances. Even if they turn you down, "it doesn't hurt to probe or investigate," says Wilber. When you visit, check for piles of unopened mail, notices from creditors, or a disorderly checkbook. Do they have failing eyesight or arthritis that would make it difficult to write out checks? When you mention Apr. 15, do they seem aware taxes are coming due? If they are unwilling to spend cash, make sure they are filling prescriptions and buying enough groceries, Cohen advises. If they are spending too much, make sure they aren't paying medical bills insurance could cover or giving excessive gifts.
To family members, any one of these problems can seem major, but most of them are easily solved. What you can't do yourself, you can hire someone else to take over. And you may be able to bring things back under control just by arranging for dividends, Social Security, and pension checks to be directly deposited into the bank. Bills that are the same each month can often be paid through automatic withdrawals. A central assets account, which combines checking and savings, a brokerage account, and a debit card that has one statement can be a great way to simplify things, says Jones. Many of these all-in-one accounts also come with automatic bill-paying services. That way, you can pay the bills for your parents using a Touch-Tone phone or with your personal computer. Many banks will provide you with copies of parents' statements, and utility or insurance companies may be willing to inform you if a bill goes unpaid.
All this must be done at your parent's request, however. "Their right of confidentiality is first and foremost," says Stephen Heine, a senior vice-president at KeyCorp. Informally, bank officers and insurance agents may be willing to work with children of elderly clients if they recognize you have your parents' best interests in mind.
If your parents need help but you don't live in the area or they would rather get it from a third party, there are any number of places to turn (table, page 120). Financial planners, accountants, and bank officers may be willing to provide a variety of money-management services. Local social-service agencies and the American Association of Retired Persons provide free financial help, commonly called "daily money management," to low-income seniors.
There are several new fields developing to meet the needs of seniors able to pay for services. These businesses can be an enormous source of relief for people who do not live near their parents. But there is also potential for fraud. You'll need to do some checking to make sure you're dealing with a legitimate enterprise. Review qualifications, ask for references, and check for complaints at your local Better Business Bureau or Chamber of Commerce. Particularly when hiring someone to help with finances, "we suggest a written understanding of what they will do and what they will charge for it," says Cohen. "Temptations are too great."
MANAGEMENT TEAM. If your parents have an assortment of needs, such as help with cleaning or cooking along with daily money management, a geriatric-care manager can help. These private advisers, usually nurses or social workers, will develop a long-term care plan for your parent, which may include finding them housekeepers, bill-payers, or drivers. Care managers charge from $60 to $150 an hour and usually take five to eight hours to do an initial assessment, gather information from other sources, and put together a plan, says Cohen, who is president of the National Association of Geriatric Care Managers. Once the plan is in place, they will monitor your parents' well-being and be on hand in the event of an emergency.
Businesses are also cropping up to handle the mind-boggling process of filing health-insurance claims. "A lot of elderly people get very intimidated and start paying bills they shouldn't," says Harvey Matoren, president of Claims Security of America, based in Jacksonville, Fla. The company provides service nationwide, charging $195 a year plus a $35 setup fee to handle all claims.
Even if your parents don't need help with paperwork and bills, you should sit down and review all their investments and financial agreements. Check to see that they haven't bought any unnecessary insurance policies and discuss getting long-term care coverage or a Medicare supplement, or "Medigap," policy. Find out about any hidden bank or brokerage accounts and safe-deposit boxes and ask your parents to add your name to accounts so you'll have access in case of emergency.
BE SUSPICIOUS. Establish a relationship with all your parents' advisers and care providers. This includes personal visits with the parents' lawyer, accountant, or financial planner as well as their nurse, housekeeper, or cook. "Face to face, you can control the relationship a lot better," says Jones. Partly this is to make sure you can trust the people your parents trust. But assuming they are reputable, you also want them to know you so they will call if they have any concerns.
Be suspicious of anyone new in your parents' lives. Check out the qualifications of new financial advisers and see if they represent a major firm. Elderly people are often vulnerable to aggressive sales tactics. But if unscrupulous advisers know you are closely involved with your parents, even if you live far away, they may look for an easier target.
There are an assortment of legal documents your parents should have in place long before they actually need them. These documents will make it much easier for you to manage things if a parent becomes incapacitated. A durable power of attorney permits you to make all financial decisions, including managing their banking, real estate, and investments. This doesn't limit parents' ability to make transactions and they can revoke it at any time, so it doesn't give you control over their spending. But if they are suddenly unable to manage their affairs, you'll be able to free up cash and write checks, even if your name isn't on all the accounts. And as long as they remain healthy, if they travel, you'll be able to oversee their finances while they are away.
Powers of attorney have gotten more flexible in recent years, says Howard Gladston, head of trusts and estates for the New York law firm Ballon Stoll Bader & Nadler. Your parents can choose to grant you the power only for specific accounts or transactions. They could also create a "springing" power of attorney that goes into effect on a certain date or following a specific event. Knowing this may make them more willing to have the document drawn up.
A health-care proxy, also known as a health-care power of attorney, allows you to make medical decisions for your parents and ensures that you know their wishes for treatment if they are sick or in an accident. A living will specifies what kind of heroic measures should be taken to keep your parents alive if they slip into a coma and outlines burial plans. Attorneys will often put together a package of these documents (durable power of attorney, health-care proxy, and living will) for a fee of $100 to $300, depending on the lawyer and the part of the country. Without these relatively simple arrangements, you might have to go through a costly and upsetting court process to be named guardian if your parents became incompetent.
LIVING TRUSTS. Trusts can be a useful tool in many situations but are considerably more complex and can be expensive to draft. If your parents haven't done so, you should all meet together with an estate planner who can explain various options. Life-insurance trusts can provide you with cash to cover estate taxes. Or if avoiding probate is the goal, "living trusts" may be useful. A common trust specifies that the parents receive income, while the principal goes to heirs. Some trusts allow cash to be removed only at the discretion of the trustee, which is one way you could limit the amount your parents spend. Essentially, a trust can be written to accomplish almost any goal. But since it is your parents' money, they dictate the terms. You can only make suggestions.
More than any trust arrangement or legal document, the best way to keep your parents out of financial trouble is to have an open and honest relationship. That may mean having uncomfortable discussions about money earlier than seems necessary. But if you wait too long, you may lose the chance to help them help themselves.
Helping Your Parents Stay Out of Financial Trouble
SIMPLIFY EVERYDAY MONEY MANAGEMENT This could be as basic as making sure parents have direct deposit for dividends and Social Security checks or helping them keep track of financial papers and writing checks. Services are available to handle health insurance claim forms and bill-paying.
GET LEGAL DOCUMENTS IN ORDER A durable power of attorney will allow you to make all financial decisions without having to go to court and establish guardianship. A health-care proxy will allow you to make medical decisions. A living will specifies what heroic measures, if any, should be taken to keep your parents alive if they are in a coma.
REVIEW FINANCIAL AND ESTATE PLANNING Make sure your parents don't have unnecessary insurance policies and consider adding long-term care or "Medigap" coverage. Find out about any hidden bank or brokerage accounts. Meet with an estate planner to discuss strategies for saving on estate taxes.
ESTABLISH A RELATIONSHIP WITH ADVISERS AND CARE PROVIDERS Make sure you trust the people your parents trust--especially anyone new. Meet face-to-face with their lawyer, accountant, or financial planner, as well as anyone providing nursing or home care. This may discourage anyone from trying to exploit them and encourage anyone reputable to call you if a problem arises.
DATA: BUSINESS WEEKBy Amey Stone EDITED BY AMY DUNKIN