No one likes to think about their parents aging or the thought of having a conversation with them about needing to accept help. If your parents are like mine, discussing anything related to getting older (and let’s not even mention end-of-life decisions) never goes over well.
Growing up, I watched my parents become caregivers to each of their parents. This included having my grandparents move in with us, providing them with round-the-clock care, taking over their finances and ultimately acting as their executors, and so much more.
I observed how exhausting this can be over time; it took both a physical and emotional toll on my parents. I have since realized that it does not always have to be this difficult and that there are ways to make this a little bit easier.
Being a wealth advisor for 10-plus years, I have also come to realize that this theme is more common than I had initially recognized. When we are working with clients, we should encourage them to have discussions with loved ones before it becomes too late. You don’t want to make hard decisions during difficult times, especially when you are the caregiver.
“You don’t want make hard decisions during difficult times, especially when you are the caregiver.”
Typically, our clients are the parents and over time we begin to work with their children and grandchildren. In the last couple of years, the opposite has been true — we have had several adult children ask if we would work with their parents.
The common themes have been that they are worried that their parents are declining or they are concerned about their parents’ financial affairs. The children often ask us, “Will you work with them? And can you help us?”
Seeing my parents go through the struggles with my grandparents, I can personally speak to the importance of having these conversations. We recognize that starting the conversation can be difficult but also very crucial. When having these conversations with loved ones, there are a few important things you may consider addressing:
Simplify financial affairs
Recently, we met with our clients Matt and Stephanie, who are in their mid-50s. Like most advisors, we spend time discussing family updates and checking in on any life-changing events. During this meeting, Stephanie shared that her father seems to be forgetting more and more. Her mother is now consumed with not only taking care of him, but also taking on a role she had not had to focus on before: managing their finances.
Stephanie asked if there was anything she could do to help her mom and dad. We asked if she had ever had any discussions with her parents about their financial affairs. She responded that while they had shared some information over the years, she was not aware of their whole financial situation.
Stephanie shared that she was designated as her parents’ power of attorney. In this role, she would have authority to step in on her parents’ behalf to handle legal and financial matters. She asked us, “Where do I even begin?”
We talked about how she might start by encouraging her parents to share with her their full financial picture so she could help them simplify their affairs. Talking about money is generally not an easy conversation to have, but Stephanie’s parents were comfortable speaking openly with her.
We suggested that Stephanie begin with understanding their sources of income, how their accounts are titled, and where their accounts currently are custodied. Learning this information would give her a good starting point in understanding her parents’ financial affairs. (We remind clients that maintaining accounts with one custodian, when possible, makes things easier and much more manageable.)
In situations like Stephanie’s, the goal is to understand parents’ wishes and to work together to simplify their parents’ finances over time. This not only helps ease the burden on the surviving spouse, but also on their children.
Convert traditional IRAs to Roth IRAs
Two years ago, our client Jessica was helping her mom, Debra, review her personal finances. She noticed that Debra had multiple traditional IRAs in her name. We discussed that it would make more sense to consolidate them into one IRA with one custodian.
After Jessica spent some time cleaning up her mom’s personal affairs, we reviewed Debra’s situation in more detail. She was receiving Social Security and taking required minimum distributions from her IRAs. And she had more income than she really needed to support her lifestyle.
We discussed that with traditional IRAs you are required to take distributions starting at age 73. Depending on how large the IRA is, these distributions could kick you into a higher tax bracket. However, with a Roth IRA there are no required distributions and the money grows tax deferred.
Based on her tax bracket and lifestyle needs, we determined that it made sense to convert some of Debra’s IRAs from traditional IRAs to Roth IRAs. We planned for her to do partial Roth conversions over a three- to five-year period. This means that every year she would convert a portion of her traditional IRA to a Roth IRA.
Debra will owe taxes on the amounts that she converts. But once converted, she is not required to take mandatory yearly distributions from the Roth portion. This strategy fit Debra’s financial situation because we had determined that she did not need the distributions from her traditional IRA. As mentioned earlier, she had enough resources to support her lifestyle. However, if at any point Debra needs to access additional funds, she can utilize her Roth IRAs.
Another benefit of Debra’s Roth IRAs is that her beneficiaries on these accounts will also enjoy tax-free distributions when they inherit them.
Review estate plans
According to the 2023 Estate Planning Survey from Caring.com, only 46% of Americans ages 55 and older have a will or other estate planning documents. A good percentage of those who have wills have not reviewed their documents in several years. As we tell all our clients, having a will and your end-of-life affairs in good order are extremely important.
Additional Reading: An American Dream Gone Bad
I saw firsthand the importance of this after my grandfather passed. My grandparents immigrated from Italy to Brooklyn, New York, with their family. They eventually became restauranteurs, and their children joined the family businesses. As entrepreneurs, they focused a lot of their time on their businesses — concentrating on their estate plans was completely foreign to them.
Fast forward, my grandfather passed away and my father was named the executor of my grandfather’s estate. My father was left to pick up all the pieces of the estate and coordinate settling my grandfather’s affairs with the entire family. I vividly remember how much of a burden this became for my father, on top of continuing to run the businesses.
I remember thinking that there must be a better way. And as time went on, I realized it did not have to be this way.
Had my grandfather spent more time discussing his wishes with my dad, it would not have been such a huge undertaking after he passed away. Spending time to spell out a parents’ wishes and how they would like their assets distributed will help avoid future family issues and burdens for their loved ones. Reviewing beneficiaries with your clients yearly, or with any life-changing events, is another great exercise. It is also important to have a power of attorney and updated healthcare directives.
Encouraging your clients to have these conversations today with their loved ones is very important. Providing them with a few discussion points could be the help they need to get started. You may even offer to help facilitate these conversations.
Having the conversation today could be all it takes to help avoid issues for future generations.
Assunta “Susie” McLane, CFP, is a managing director and senior wealth advisor with Summit Place Financial Advisors LLC. She can be reached at Assunta.Mclane@summitplacefinancial.com or 908-517-5884.
