by Michael Vandenburg, CFP®
We all plan out our retirement, our children’s education, and even our vacations, but one thing we often overlook until necessity demands our attention, is our parents’ future. This is one of those areas where even just a little bit of open communication between aging parents and their children can make a huge difference. There is no way to deny the aging population of America, so this is something that will affect almost everyone. The following are a few helpful suggestions to aid in these discussions.
Start Discussions Early
Unfortunately, aging is a process of decline that usually happens through abrupt triggering events, rather than in a smooth line. Therefore, it is never too early to start talking about care planning—and best to have these discussions when your parent is well. Discussions about future needs will be easier before these events take place, when your parent is not yet dependent on care. These types of conversations can be difficult to start, so it may help to have a more formal “family meeting”, or better yet, take the entire family on a trip together.
Review and Update Legal Documents
During your discussions, a primary topic to address is your parent’s legal documents. The following is a list of basic documents, and some suggestions for what to emphasize in your review:
Advance Health Care Directive (AHCD): This document outlines how your parent would like specific potential health issues to be addressed, and then names a person to act as the agent of the directive, as well as backup agents.
Special consideration should be given to the individual named as an agent—sometimes the best person for this job isn’t the person handling financial assets, but someone specifically suited to carrying out and respecting your parent’s health care wishes.
Families without this directive, such as the publicly known case of Terri Schiavo, can suffer through very difficult medical decisions. Therefore, it is truly a gift your parent can give your family by completing this document.
Power of Attorney (POA): This type of document names a person in addition to your parent who has the right to authorize financial transactions for him or her on named assets or accounts. A couple of important things to know about POAs, and to know about your parents’ POA:
There are different types of POAs: Some of which “spring” into action upon specific health events, and others that are “durable” to cover any situation.
Many financial institutions require their own specific Power of Attorney form to be completed in addition to one a lawyer may have created.
Trusts: As you likely know, trusts are legal entities that can own assets and designate trustees and successor trustees to control the management and distribution of those assets according to the rules of the trust. Here are some basic things to check with your parent about his/her trust(s):
Have the assets, such as bank accounts, investment accounts, retirement beneficiaries, or property, been renamed or “registered” in the name of the trust (or are they still in the name of your parent)?
Are the designated trustee(s), and successor trustee(s), up to date with current wishes, and are they the most appropriate people to handle financial decisions for your parent?
If your parent is the only trustee of the trust, would he/she be comfortable naming one of the intended successor trustees as a co-trustee (which can be a more easily accepted form of recognized authority by financial institutions than a power-of-attorney)?
Are the trust’s rules about the eventual distribution of assets up-to-date with current wishes?
Does the trust plan for a tax-efficient transfer of assets for a large estate, possibly with the use of a bypass trust if your parent is married, and are those instructions up to date with current estate laws?
Wills: Although most assets should be covered by a trust, a will describes your parent’s intentions for non-financial assets, personal effects, etc. Additionally:
A will can have a “pour-over” clause, which would help gather any assets not yet registered in the name of the trust and “pour” them into the trust’s control.
The facts about Long-Term Care
Although I am not a big fan of long-term care insurance, that doesn’t mean we don’t need to prepare financially for the possibility of some type of care. To cover these costs, you may have multiple sources, including your own or your parent’s savings and financial assets, health insurance, long-term care insurance, and/or possibly a pension or other income. The bottom line is that it’s important to recognize that the costs of long-term care can be significant, and it increases as more assistance is required. Here are some examples:
In-home care, which provides assistance and care in the comfort of your own home, can cost $25 to $50 per hour. Most people that choose this will need 40 hours of care per week or more which can cost $4,000 to $8,000 per month, plus normal household expenses.
Assisted living, which provides housing, maintenance, meals, and a social environment, can cost $3,000 to $6,000 per month in California. The higher cost providers often have bigger rooms, nicer grounds, or provide more care services. Adding supplemental care or attention may involve extra fees.
Skilled nursing, which provides housing, maintenance, meals, and social activities, along with a level of medical care requiring a higher level of licensing. This level of care can cost $200 to $400 per day in California, or about $6,000 to $12,000 per month. At this level of service, there can still be a need to add supplemental care or attention (at additional costs).
Determine the Best Living Situation
In the evaluation of the best living situation for your parent, it is important to consider his or her social situation, because studies have found that social isolation can lead to depression and overall diminished health. Some studies have even shown a link between isolation and Alzheimer’s. In addition to physical health, one of the keys to successful aging is emotional well being. Social support is the most important component in improving one’s emotional health, and having a positive attitude and a sense of humor also help. All of these can be fostered by being around positive people. Although many people think they would like to live at home as they get older, if that means they will be alone much of the time it may not be the best option. Planned retirement communities, or assisted living facilities, may feel less independent, but they can offer more social interaction.
In summary, it is never too early to begin discussions with your aging parent about their future care needs, an ideal living situation, how costs will be covered, and a review of legal documents. I have let my kids know what I want when I get older and they’re still in grade school … although I think I’ll save the major stuff for after they grow up a bit.