What You Don’t Know About Your Parents’ Finances Could Ruin Yours

Chad Hassinger |

By Jeff Rose
July 17, 2019

I wasn’t too surprised when personal finance website GOBankingRates recently released a survey that found that 73% of Americans haven’t had conversations with aging parents about their finances. After all, most people are too busy trying to figure out their own finances to think about having money talks with their parents.

What did surprise me, though, was that 22% of the survey’s respondents said that they never plan to have this conversation with their parents because they think their parents’ finances are none of their business.

It’s one thing to assume that these conversations can wait until a health or financial emergency makes them necessary. But avoiding money talks with your parents altogether can be a mistake.

“If you don’t take the time to talk to your parents about their finances, your own finances could take a hit,” said Cameron Huddleston, author of the new book “Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.” Why? There’s a good chance you’ll have to get involved with your parents’ financial lives as they age, she said. That can affect your own financial well-being if you aren’t prepared for that role.

You Might Have to Care for Your Parents

It’s well-known that Americans are living longer. With longer lives, though, comes an increased risk of health issues. About 80% of older adults have at least on chronic diseases such as heart disease, cancer, stroke, diabetes or dementia, and Alzheimer’s disease, according to the National Council on Aging.

The latter – Alzheimer’s disease – is becoming increasingly prevalent as people live longer. The number of Americans living with Alzheimer’s disease is expected to more than double to 14 million by 2050, according to the Alzheimer’s Association.

Huddleston’s mom was diagnosed with Alzheimer’s disease when she was 65. Because her mom was divorced and living alone, Huddleston had to step in and start helping out her mom. For a few years, her mom lived with her – forcing Huddleston to juggle caregiving with her job as a financial journalist and her role as a mom of three children.

“My biggest regret is not talking to my mom about her finances before she started losing her memory,” Huddleston said. “She didn’t have long-term care insurance, and we didn’t have a plan for paying for the care that she needed.”

Only 5% of adults ages 55 to 60 have long-term care insurance, and only 11% of adults 65 and older have a policy, according to the Urban Institute. Long-term care insurance helps cover the cost of care in an assisted-living facility, nursing home or even at home. Medicare does not pay for this sort of care – which can be more than $8,000 a month.

It’s important to find out whether your parents have long-term care insurance or savings to cover this sort of care because, according to the Bipartisan Policy Center, 70% of adults 65 and older will need long-term care at some point.

“If you and your parents don’t discuss and prepare for how to pay for any care they might need, you could become your parents’ long-term care plan,” Huddleston said. “That could force you to cover the cost or stop working to help care for a parent.”

You Might Have to Help Support Them Financially

Even if your parents don’t need long-term care, they still might need your help as they age. A report published by the Stanford Center on Longevity found that half of Americans aren’t financially prepared for longer lifespans. Your parents could be a part of this disturbing statistic.

They might not have enough saved for a comfortable retirement. In fact, your parents might be among the quarter of Americans who have no retirement savings. They might be drowning in mortgage, credit card or even student loan debt they took on to pay for your college education. They might have skyrocketing health care and prescription drug costs that they’re struggling to pay.

Huddleston said she interviewed several people for her book, “Mom and Dad, We Need to Talk,” who know they likely will have to help out their parents as they age because they aren’t doing well financially. Those who haven’t had detailed conversations with their parents about their finances expect to face a bigger burden than those who’ve been able to help their parents start managing their money better by having discussions with them, she said.

“Too many people think that only wealthy families need to be having money talks,” Huddleston said. “However, it’s even more important for adult children whose parents aren’t doing well financially to start having family money talks because they will more likely have to get involved with their parents’ financial lives.” Knowing sooner rather than later how much financial support you might have to provide parents can help you take steps to prepare your own finances.

“If you have siblings, it is important for all children to be in the loop regarding the parents’ finances, especially if it’s likely that they all would have to contribute toward taking care of their parents in the near future, whether it be a medical expense or even funeral expenses”, says Luis F. Rosa, financial planner and founder of Build a Better Financial Future, LLC, a virtual financial planning firm that focuses on financial planning for generation X. “Having the conversation among siblings will help all parties involved be better prepared. The last thing you need is a surprise costly financial obligation while at the same time dealing with the emotional stress of seeing a parent sick or deceased.”

You Might End up in Court

The most important reason to talk to your parents about their finances sooner rather than later is to find out whether they have a will, power of attorney and living will or advance health care directive, Huddleston said.

A will spells out who gets what when you die. If you die without one, your state law will dictate who gets your assets. There are countless stories of families who end up in court battling it out over who gets what after a family member dies without a will.

A power of attorney document lets you name a person or people to make financial decisions for you if you cannot make them yourself. And a living will or advance health care directive specifies what sort of end-of-life medical care you would or would not want – such as life support – and lets you name someone to make health care decisions for you if you can’t.

These legal documents must be signed while a person is mentally competent. If your parents don’t have these documents and a health issue compromises their mental capacity, they won’t be able to sign them and give you, your siblings or other trusted family members or friends the legal right to make financial or health care decisions for them. At that point, you would have to go through a lengthy and expensive court process to gain the legal right to make financial or health-care decisions for them.

Huddleston said she interviewed a man who spent $10,000 and nine months going through the court process to become his dad’s conservator because his dad had not named him power of attorney before he developed Alzheimer’s disease. If he had been named power of attorney while his dad was still competent, the son would have been able to access his dad’s bank account to pay his medical bills without having to go to court to prove his dad was no longer able to manage his finances on his own.

There is a cost to having estate planning documents such as a will, living will and power of attorney drafted by an attorney. But the several hundred dollars your parents would pay for these documents pales in comparison to the several thousand dollars you could pay if you end up in court if your parents didn’t have the documents and you needed the legal right to make financial or health care decisions for them or to divvy up their assets after their death, Huddleston said.

“Having legal documents in place that clearly specify your parent’s wishes are so important especially in light of the “coping gap” that occurs when they pass. Grief makes facilitating estate affairs so much more difficult on its own. A properly organized legacy plan provides the children an opportunity to “literally” get on the same page with their parents via a living trust package,” says financial planner Anthony Montenegro of The Blackmont Group.

How to Talk to Your Parents About Their Finances

Your parents likely won’t think you’re being nosy by asking them about their finances if you let them know you want to have the conversation to be prepared in case they ever need your help, Huddleston said. “The key is to let them know that you’re looking out for their best interests,” she said.

You could start the conversation by asking your parents what they have in place to deal with “what if” scenarios. For example, you could ask what would happen if they had a health emergency and ended up in the hospital and you or your siblings needed access to their financial accounts to make sure their bills were paid, Huddleston said. Or you could ask whether they would want care in their home or a facility if they ever needed long-term care and whether they have a way to pay for that care.

Or you could start the conversation by talking about your own financial planning experience. You could tell your parents you recently had a will drafted and want them to know where to find it if something happened to you, Huddleston said. Then you could ask where their estate-planning documents are so you’ll know in case of an emergency.

Jose V. Sanchez, a certified financial planner in Albuquerque, New Mexico can relate to this situation all too well. He adds, “I realized that my father had created online bill payments, online accounts for the utilities, and the like. None of this was shared with anyone including my mother who is not computer savvy. I then shared with them our experience with Everplans and showed the systems that helped us get organized and systematically address our digital estate.”

Sharing stories about people you know who had to care for a parent or deal with the fallout after a parent died without a will can open the door to conversations about long-term care and estate planning. Huddleston offers several more ways to get the conversation started, what information to gather and how to get through to reluctant parents in her book. “As difficult as these conversations might seem, the consequences of not having them can be far worse,” she said. “So start talking today.”

This article was written by Jeff Rose from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.