Aging parents take note: you need to start talking to your adult kids about money as you get older.
A new study from Fidelity Investments found that adult children are willing to help support and care for you as you age, which may come as a surprise and a relief. There’s just one small problem, and it comes down to communication: Most families don’t agree on exactly what that help should be, and what responsibilities children should assume when it comes to taking care of aging parents.
Fidelity’s third Family & Finance report, surveyed two members of each family polled — one parent and one adult child — on topics like retirement income, caregiving, and estate planning. The results: Nearly two in five families disagree on the roles those children should play as parents age.
Be Careful About Who You Appoint As Executor
While more than 90% of aging parents think one of their children will become executor of their estate, 27% of their kids don’t know that they’re expected to take on the role. If you’re an oldest child, get ready: 55% of parents tap the first-born for this job. This is concerning, due to the obligations cast on an executor to fulfill the role. What if the adult child you’ve nominated to be the executor isn’t the right person for the job?
Care-Giving Into Old Age
If you’re expecting one of your adult children to become your caregiver as you need extra assistance, be sure to let them know. Three-quarters of aging parents assumed one of their kids would take over long-term care responsibilities, but that was news to 40% of the adult children who were tapped for the role. It usually falls to daughters to carry out this role: 58% of the time, the child picked for caregiving duty is female.
There were other expectation divides when it came to assistance with financial tasks. Almost 70% of parents expect that at least one of their children will help manage investments and retirement finances, and a similar percentage thought the kids would pitch in on household expenses, budgeting and bills. That was news to the adult children — 36% didn’t know they were expected to handle investments, and 44% were unaware their aging parents wanted help with household budgets.
Communication Between Aging Parents & Adult Children Is Key
The primary reason children have no clue that their aging parents expect help with any of of these tasks: Parents haven’t ever told them.
When asked specifically about family conversations, most respondents told Fidelity that they had never had detailed conversations about topics like long-term care, living expenses in retirement, wills and estate planning — even where important documents are kept.
Almost half of parents said they have not had detailed discussions with family members about long-term care — and an additional 23% of aging parents have never talked about the subject with their kids.
Parents do a little better when it comes to talking about retirement expenses, with about two-thirds reporting detailed conversations with their kids on the matter; only 16% have not had any conversations on the topic at all.
But are their kids paying attention? While 69% of aging parents say they’ve talked at length with their children about their will and estate planning decisions, about half of their adult kids say there’s been no such conversation. And three in 10 families couldn’t agree on whether the kids knew where to find key documents like wills, power of attorney and health care proxies.
So when should families have these discussions? It’s such a tricky question that two-thirds of families surveyed were in disagreement.
The majority of both aging parents and children feel discussions about financial planning don’t need to happen until the parents have retired and either health or finances become an issue. But this may be too late. These types of conversations need to be had while all parties are healthy and before crisis hits. Clarifying expectations for all family members will minimise the risk of conflict and resentment.
Families who’d had at least some detailed financial conversations felt more secure about the younger generation’s future — on both emotional and financial levels — than families who hadn’t.
Survey after survey have illustrated similar communication gaps when it comes to talking about money with family. Few people like talking about getting old, dying and how much money they do or don’t have. A T. Rowe Price study recently found that parents are more than willing to overspend on their kids but are reluctant to discuss money with them.
It’s important to talk about aging and money early because the best decisions don’t get made in the midst of a crisis. There are no do-overs if a parent, for example, falls for a financial scammer and transfers away all of the money, or if one becomes incapacitated and can’t share personal wishes.
Aging Parents: Documents to Consider
In addition to your will, you might need to consider as part of your estate planning:
Testamentary discretionary trusts are great estate planning tools because they can offer tax minimisation, asset protection and flexibility. A testamentary discretionary trust is a type of trust created under a will, comes into existence only upon the administration of the deceased estate.
An Enduring Power of Attorney is like a living will. It outlines your wishes regarding your finances and/or health in the event that you lose capacity to make decisions due to age, illness or accident. A person or number of persons are named as attorneys who will act on your behalf. An Enduring Power of Attorney should set out what kind of decisions should be made, and how such decisions should be made if there is more than one appointed attorney.
An Advance Health Directive. The law permits people with capacity to give a detailed and formal written direction to doctors, other health professionals and/or family as to what medical treatment they are agreeable to and what treatment they clearly do not want. If you lose capacity, need medical treatment and can’t communicate about it, an Advance Health Directive, completed and signed in the presence of your doctor, solves this problem.
Superannuation. Your will cannot dictate what happens to your superannuation when you die. While nomination forms exist to take care of this problem, they are usually inadequate and fail to address more complex asset structures. Considering the potential size of the superannuation asset, it’s important to exercise control over the asset so that it’s disbursed according to your wishes. A self-managed superannuation fund is the best vehicle for providing flexibility. Ad hoc rules can be drafted to for the fund to act like a living will, and dictate what happens to the assets when you die.
Aging Parents and Family Arrangements
For a whole range of reasons, a family arrangements document should be drafted outlining what all parties have agreed to, including expectations and responsibilities.
If a family arrangement is not thought through correctly, set out below, are some of the unexpected outcomes we have observed here at Mitchells:
The older person is disadvantaged enormously in being left with little or no means to go elsewhere or even to consider paying a bond to move into an aged care facility, if things don’t work out.
The pension is unnecessarily affected by failing to get legal advice and think through the legal issues.
The child who undertakes the care ends up being demonstratively worse off.
The older person is happy and content with the arrangement as is the child who is carrying for the older person, but inadvertently other children miss out under the Will because of a lack of careful planning.
The child who cares for the older person is accused of taking advantage of the older person and is shunned by other members of the family (this can often be avoided by a more transparent approach and consultative approach so facilitated by a solicitor who has a working knowledge in elder law).
We are able to assist in carefully and thoughtfully documenting family arrangements. Contact us for a free, 10-minute phone consultation.