Role Reversal: How to Have 'the Money Talk' with Your Aging Parents

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Senior adults talking with their adult children. Taken at iStockalypse Milan.
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Did your mother teach you it's not polite to talk about money? That may be true when you're with strangers or acquaintances, but when it comes to discussing finances with her and dad, the consequences of choosing polite silence can be disastrous.

Tim Prosch, author of AARP's "The Other Talk: A Guide to Talking With Your Adult Children About the Rest of Your Life," has seen just how devastating it can be when families fail to discuss future plans. Two of his friends scrambled to take care of their parents when both suddenly became incapacitated. No one in the family had prepared for their parents' future, let alone discussed what they would do should a situation like that arise.

One sister became the caregiver even though she lived out of town. After she requested more and more time off work, her employer eventually let her go. She's been unemployed ever since, says Prosch. When the parents' savings ran out and there wasn't any long-term care insurance to rely on, the other sister took out a home equity loan to help out with costs. Eventually that sister went underwater on her mortgage, lost her house to the bank and her husband to divorce.

While not every family will experience such a dramatic set of problems due that kind of lack of foresight, fortune doesn't favor the unprepared. Aging parents need to establish a plan and communicate it with their adult kids -- and adult kids need to ask their parents about their finances.

Prosch says there are three main emotional barriers that stop older people from talking to their adult kids about financial matters:
  • Denial: They don't want to think about your impending deterioration and eventual demise, and their children don't want to talk about it.
  • Role reversal: It's a tough adjustment for both kids and parents when the younger generation adopts the responsible caretaker role.
  • Loss of control: They may feel as if they're losing control. (But once people discuss the future with their children, they can feel they're sharing control.)
How to Begin the Conversation

A great place to start the conversation with your family and to get organized is to create a binder, suggests Prosch. It can be an actual binder filled with paper documents, or an electronic file stored on your computer or in the cloud.

"You need to include all the expected items like a will, medical and financial powers of attorney, do-not-resuscitate instructions, and funeral preferences," says Prosch. "But you should also include other critical documentation like life insurance policies, birth and marriage certificates, tax returns, and lists of medicines and the doctors who prescribed them."

John Piershale, a certified financial planner and wealth advisor at Piershale Financial Group in Crystal Lake, Ill., also recommends including a letter of instruction, an informal, non-legal document that goes with your will and is used to express your personal thoughts regarding what's in the will or other things such as your burial wishes or where to locate other documents. This can be the most helpful document you leave for your family members and executor, he says.

Equally important to include in the binder are a full accounting of your assets and a spending plan from now until age 92. Believe it or not, that's the average age a 65-year-old today is expected to live to -- and that's just the average, so of course, you could live even longer.

"Many parents resist this full financial disclosure," Prosch says, "but my response is, it's all going to end up in your kids' laps anyway, so just do it."

Money Matters to Discuss

One of the most crucial topics to discuss is long-term care insurance.

"We know of a client, a 75-year-old widow with two children and $550,000 in investments, who recently suffered a stroke and now needs help with bathing, dressing, and eating," says Piershale. "Home health care for her will cost about $85,000 per year. This will now come out of her assets, so the money she had hoped to pass on to her children will instead be spent on expenses that may have been covered by long-term care insurance."

Long-term care insurance pays for custodial care in nursing homes and other settings such as home health care, explains Piershale. Because Medicare and other kinds of health insurance do not pay for custodial care, most people have three options for paying their nursing home bills: their own assets (cash and investments), Medicaid, and long-term care insurance. People with significant income and resources they want to protect and pass on to spouses, children, and other heirs may want to consider long-term care insurance.

In addition to talking about long-term care insurance, Suzanna de Baca, vice president of wealth strategies at Ameriprise in Minneapolis, recommends discussing your disability and life insurance policies with your adult kids and asking about theirs, and whether they've established a guardianship for their children.

"It's important to make your children aware of your short- and long-term plans, especially if you're nearing retirement or have recently retired," says de Baca. "Share any major financial and lifestyle decisions, including if you're planning to travel or relocate during retirement, what arrangements you've made for future health care needs, and any legacy plans you have in place."

This is especially important for those who are currently providing financial support to adult children or grandchildren (or plan to in the future), de Baca says. "Speak honestly and set realistic expectations. Be clear about your ability to contribute funds for their specific financial goals (such as educational expenses) or to provide support if your child has a financial emergency like an unexpected job loss."

If you've taught your kids well about money, it's time to turn the tables and let them work with you to prepare for your financial future.

Michele Lerner is a Motley Fool contributing writer.

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