TALKING MONEY WITH

MOM & DAD 

Talking to your aging parents about money is about as comfortable as talking to your children about sex.  It’s a conversation you would rather not have but one that responsibility dictates.  Money is a sensitive topic.  Because the situation is a delicate one, most people simply put it off.  Don’t wait for your parents to bring it up, because they often won’t.  Consequently, you may find out too late the answers to such important questions as:  Have your parents saved enough to retire?  Have they prepared all of the necessary documents - will, living will, financial and healthcare powers of attorney?

Have they told anyone where they keep their important documents?  Have they made an estate plan?  These are not the type of questions you want to ask at the time of a family crisis.  You need to know the answers to these questions to properly assist them. 

Here is a basic checklist of questions children should ask their parents:

DO THEY HAVE THE NECESSARY DOCUMENTS?

Make sure your parents have prepared a will and have kept it updated.  This includes any specific bequests that they may want made.  A will details how assets should be distributed.  If they have a living will, make sure it has been kept updated.  If they have any powers of attorney, make sure they are kept updated.

CAN THEY DIRECT YOU TO THEIR FINANCIAL RECORDS?

If your parents become incapacitated or pass away, you will want to be able to quickly locate all of their financial records.  You need to ask your parents to make a COMPLETE list that includes all of their financial assets, bank accounts, investments, retirement accounts, vehicles, jewelry, property owned, etc. as well as any loan accounts.  The list should include account numbers, addresses, contact names AND the physical location of the documents such as in a safe deposit box, or in the third drawer of the filing cabinet, or stuffed in the toe of the second red shoe on the first shelf in the closet.  Your parents should share a copy of the list with you so you can assist in a time of emergency.

HAVE THEY COMPUTED THE TOTAL VALUE OF THEIR ASSETS?

After they have identified all of their financial assets as described above, they need to total up the value of these assets.  If the assets are less than $675,000, a simple will should probably suffice.  The income tax code currently allows people to pass as much as $675,000 to individuals or trusts through their estate without incurring federal estate taxes.  That amount is scheduled to gradually increase to $3.5 million by the year 2009, and the estate tax is scheduled to be repealed for the year 2010.  Married people with estates exceeding the $675,000 level should consider a will that includes a Bypass Trust.  This enables up to $1.3 million to potentially pass to beneficiaries free of federal estate taxes. A more complex will is needed in this case, but it is well worth the extra effort and cost since it results in saving over $220,000 in estate taxes, which then passes to their beneficiaries instead of to the IRS. 

DO THEY UNDERSTAND THE RISKS?

With longer life spans, people need to plan for longer retirements.  In addition, they need to take into account such factors as inflation and long-term medical care.  While your parents may think they have saved enough money and are anxious to start gifting their assets, make sure they have considered every eventuality.

WHAT ARE THEIR LIFE INSURANCE NEEDS?

If your parents have a life insurance policy, discuss whether or not is it still necessary.  Most retirees no longer need life insurance for liquidity, but some individuals with a large net worth may want it to cover the cost of estate taxes.  Some individuals may want to leave an insurance settlement to assist the surviving spouse, but the cost should be weighed against the benefit.

WHAT ARE THEIR WISHES?

There is a lot of needed information that is not included in the will.  Would they prefer burial or cremation?  If needed, is there any assisted-living facility that they favor?  Theses are not the types of discussions that spring freely from one’s lips, and they need to be addressed, but addressed delicately.  If your parents do have any strong feelings about these issues, they need to be shared either in conversation or preferably in a memo that can be included with the other documents.

Discussing finances with aging parents may be extremely difficult, but it is essential to the health of the family.  With factors such as the estate tax rates of up to 55%, these discussions can have true economic value to the next generations.  But, just as important, confusion and family squabbles can typically be reduced when all of the parties understand the wants and desires of their parents.

This information is from excerpts from the March/April 1999 issue of ©Money Matters, published by Deloitte & Touche LLP, Financial Counseling Services, Cincinnati, OH. This is for general information purposes only and is not intended to provide specific advice or recommendations for any individual.  Contact your tax advisor regarding your individual situation.