Baby Boomers Need to Prepare to Help Aging Parents with their Financial and Estate Planning Issues

By Ken Bloom, JD, L.L.M.
As the Baby Boomer generation approaches retirement age, most are concerned about whether their pension and investment portfolio will be sufficient to maintain their lifestyle during retirement. However, many Baby Boomers also have to worry about helping their aging parents with their estate and financial planning, and many times that means taking on a more hands-on approach to managing their parents' financial affairs.

If your parents are getting to the age where they could use some help, following is a "To Do" list you should consider to make sure your parent's financial affairs are in order:

1. Review Parent's Estate Plan - An up to date estate plan is vital because it will ensure that your parent's assets will be distributed to the individuals or charities that they select. Failure to have an estate plan could result in their assets transferred at death to individuals your parents do not want to inherit their assets.

   At a minimum they should have a will, and it may also be advisable to have a trust. A trust has several advantages to a will (for example, administration of estate is normally easier and less expensive). However the cost to set up a trust is more expensive than a will. If prepared properly a trust will avoid probate, which is usually much more expensive (as well as time consuming) than the cost of establishing a trust. Even if there is already a trust, it doesn't guarantee that you can avoid probate upon their death. To avoid probate it is necessary to "fund" the trust. Normally funding is accomplished by transferring assets (except retirement accounts such as IRAs) to the trust in a non-taxable transaction.

   It is also important to have updated medical and durable powers of attorney to enable children to pay their parents bills or access their bank accounts in the event their parents are no longer able to handle these financial chores, or to make medical decisions when their parents become seriously ill.

2. Get a handle on your parents financial affairs and insurance policies - While you may know where your parents bank, you may not know much about their other financial affairs. Now is the time to find out where all their accounts reside, including banks, investments and mortgages, and to get information on their life insurances, medical insurance and long-term care policies.

   It is also important to be more involved in their financial affairs because seniors often become more confused and forgetful as they age. As a result they are more susceptible to financial scams. So the more connected you are to their finances, the better chance you will have of helping them avoid potential scams.

   If your parents are unable to handle their own financial matters, a general durable power of attorney or trust will allow you to assist them with their financial affairs. However, there are situations where a broader approach is necessary. When a person cannot manage his/her own affairs due to legal incapacity such as a physical or mental illness, a conservatorship may be established. In a conservatorship, a person is appointed by the court to manage the financial affairs of a person. A conservatorship prevents someone from making financial commitments such as gifts that they cannot (or should not) make. Because a conservatorship is established through the probate court, it can be expensive and usually is used when there is no other alternative.

3. Make sure bills are being paid - As parents age, they often experience memory loss and become forgetful. One of the things they forget to do is pay their bills. Do an inventory of their monthly bills to make sure things are being paid. It is better to be proactive rather than wait to find out their homeowners insurance was cancelled because they forgot to pay it. Recently an elderly man froze to death in the Flint area after his heat was turned off because he forgot to pay his utility bill, even though he had ample assets.
4. Living longer may mean revised investment, long-term care strategies - According to the U.S. Census Bureau life expectancy at age 65 is approximately 18 years and at age 75 is in excess of 11 years. While it is great news that people are living longer in retirement, there are serious investment ramifications. No one wants to outlive their money however increased life expectancies require a different approach to retirement portfolios to assure that your parents do not run out of money.

   Often retirees get nervous about the ups and downs of the market and become too conservative with their investments. They lean heavily on fixed income investments such as CDs, bonds and fixed annuities. But today, with people living much longer than in the past, their investments need to focus on some growth equities as well as fixed-income funds to ensure they won't run out of money before they die. Having everything in low-interest paying investments is a great way to avoid the markets ups and downs, but it is also a sure way to miss out on solid returns that a well-diversified portfolio can provide. And with the cost of living and health care sure to increase in the coming years, retirees need more income for the future, not less or the same.

   With the chances that your parents will live longer, you also need to look at the potential that they may need long-term care in a nursing home or assisted living facility. If you parents have a long-term care insurance policy, it is important to find out the terms of policy, such as when does the policy pay benefits; and how much in benefits are provided. You should also take time now to look at the various long-term care insurance options and potential facilities that can provide assistance for your parents in the event you are not able to take care of them yourself.

5. Get to know your parent's professional advisors - Attorneys, doctors, , investment advisors and insurance agents are people your parents often trust for advice on their important matters. But when they start to lose their physical and mental capabilities as they age, the responsibility of working with these professionals will fall into your lap. So now is a great time to get to know these advisors and discuss your parents' current situation so you can help them make good decisions in the future.

Certainly, baby boomers are often caught in the middle of planning their own retirement while worrying about their parents. However, by spending some time now to do some due diligence in areas of estate planning, financial planning and long-term care, it will greatly reduce the stress you will be under if your parents take a turn for the worse.