3 Must Have Financial Conversations

08.Feb.2011by Karen in Money & Law· 1 comment

There is nothing like the money talk to bring out emotional baggage and the weakest spots in family communication. It is tricky to avoid giving the wrong impression while obtaining several key pieces of information.

Kevin Rhodes of Cornerstone Portfolios showed us how to dispel the tension in the financial talks that every baby boomer must have with their parents. I might add that baby boomers may also wish to initiate these conversations with their own children. We aren’t getting any younger!

Our time was both practical and personal thanks to Kevin’s willingness to share numerous stories from his family and professional experience. This really is possible!

It is not only possible but, in a way, it is commanded. Any conversation must be centered in honor. Ex 20:12 makes this clear: “Honor your father and mother…” There is no age limit or time limit to this command!

The extent to which adult children are invested in the care of their parents is illustrated in a 2004 survey by the Nat. Alliance for Caregiving. They found that half of adult children in the US contribute to their parent’s care. The average monthly expenditure by the adult children was $200.

The three conversations every parent and child should have are:

  1. Big picture
  2. Money
  3. Housing & Health

There were many handouts from the meeting and I’ve include links to the electronic version of these whenever possible.

#1 The Big-Picture Conversation

Never lose sight of the goal of the conversation — to uncover parental fears, concerns, hopes, and dreams. In all likelihood, this will not just be a single conversation but a series of conversations spanning several years. It is often prompted by seeing signs of deteriorating health, memory.

HandoutSeven Tips to Help Boomer Children Communicate With Their Aging Parents. This is only one section of an entire booklet The 40/70 Rule, A Guide to Conversation Starters for Boomers and Their Senior Loved Ones. The whole booklet is worth a look.

#2 The Money Conversation

Identify the Common fears/concerns

  1. “Am I going to run out of money”
  2. “I don’t know where everything is”
  3. “I don’t know if there is going to be anything left for the kids”
  4. “We don’t know how our money should be invested”
  5. “I can’t keep track of the bills anymore”

Address their fears/concerns

  1. Get an inventory of all assets and income (SS, pension, mutual fund and brokerage accounts, bank accounts, life insurance)
  2. Get a realistic assessment of expenses (include qtrly and yearly expenses, like property taxes)
  3. Compare income and expenses
    1. Are they dipping into savings?
    2. Are their current fixed income payments meeting their expenses?
    3. General guideline – if there is a gap between their fixed income (SS & pension), set up a monthly payment (annuity or systematic withdrawal) from their investments to meet the difference
    4. If savings are being used on a regular basis to cover expenses, then an evaluation should be done to assess if the current rate of use will deplete their savings.  (if yes, then some expenses will need to be reduced)
  4. Review how the assets are invested
    1. How much is in cash? (checking, savings, money market accounts)
      • If more than 6 months of expenses, look at safe alternatives to invest the difference (fixed interest annuities, CD’s). If it is less than 3 months of expenses, look to move some other assets into cash. Remember, some like to have it all in checking accounts or money market, but they may be earning nothing on it
    2. How much is at risk? (individual stocks, mutual funds)
      • A good general guideline is to subtract age from 100 – that is the appropriate amount to still have in fluctuating investments. If it is much higher than that, then some should be liquidated (although there are other factors though to consider). Handout: IRS uniform Lifetime Table
      • If it is non-IRA money, you need to be aware of capital gain and possible loss of step-up of cost basis if held until death. Check the rules on capital gains for this year and if large amount needs to be liquidated, then it probably should be done gradually. Handout: 2011 Tax Rates and Capital Gains Tax Rates.
    3. Be aware of the details
      • Are there IRA’s? If yes, are they taking the required minimum distribution? (be aware of 50% penalty).
      • Is the beneficiary information up to date on IRA’s, life insurance, and annuities? The absence of this can cause major delays in the distribution if not current (e.g., if one of the beneficiaries is already deceased).
      • For non-IRA or annuity assets, be aware they will go through probate unless they have are registered as Payable On Death (a P.O.D. can be added on bank accounts and mutual fund accounts)
      • If any Savings Bonds, be aware that as 2010, Series E bonds stop earning interest.
  5. Are there significant enough assets to consider gifting during lifetime?
    • If there are significant assets that will most likely not be needed during their lifetime and are going to be given to descendants at death, decreasing some assets by way of gifting should be considered.
    • Currently, $13,000 can be given by each person to any number of individuals each year without any gift tax consequences (no tax form needed to be filed with tax return). This can be helpful in avoiding PA inheritance tax (the PA inheritance tax is 4.5% for the recipient, when assets are inherited after death; no tax on assets received as gift while the person giving the gift is alive)
    • Keep in mind that gifting may affect the time period of receiving Medical Assistance in PA. Handout: Information on the Pennsylvania Inheritance Tax

#3 The House and Health Conversation

  1. Most want to stay in their house as long as possible
    • Is it physically possible?
    • Is it financially possible?
  2. Qualifying for Medical Assistance through PA (Handout: Medical Assistance Eligibility; especially make note of the guidelines).
  3. Know the limits of what Medicare does and does not cover with hospitalization, skilled nursing, home care and hospice (Handout: Medicare-Covered Services and Medigap Plan Comparisons. No electronic version available. It is from the Journal of Financial Planning, December 2009, pp 50-51.
  4. Long-term care insurance: If they don’t already have insurance, it usually will not be an option to purchase. Asset based Long Term Care may be an option (has life insurance component to it).
  5. Hospice care – For any terminal condition (can be longer than 6 months) Covered by Medicare

If you feel you need assistance with financial affairs, feel free to contact Kevin Rhodes. Cornerstone Portfolios offers helpful information including newsletters on various topics and several calculators for: Cost of Retirement, Rick Tolerance, Retirement Portfolio Lifespan, Savings Goals and more.  Check out their Learning Center for many of these resources.

May the Lord help each one of us to be good stewards of all He’s entrusted to us and honor our parents as we assist them in making financial decisions.


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