"It's inevitable that at some point the financial keys will need to be handed off to somebody," says Angie O'Leary, head of Wealth Planning at RBC Wealth Management-U.S. "Either you plan now, or you don't, and then it becomes a crisis."
Protecting the elderly from fraud and illness
The risks of avoiding important discussions with your parents as they age could be financially ruinous. Financial fraud targeting the elderly costs victims anywhere from US$2.9 billion to $36 billion a year, according to a 2017 Senate report from U.S. Senator Charles Grassley. "Due to its scope and persistently low reporting rates, elder financial exploitation has been dubbed the crime of the 21st century," the report states.
The concurrent rise in age-related cognitive diseases is one factor fueling the growth of elder financial fraud. With each passing minute in a day, another person develops Alzheimer's disease, according to the nonprofit Alzheimer's Association. The organization forecasts approximately 14 million U.S. residents becoming afflicted with that form of dementia by 2050. People are now living longer than ever, but with age comes an increased risk of cognitive illness.
Tara Ambrose, manager for Senior & Vulnerable Client Initiatives at RBC Wealth Management-U.S., tells a cautionary tale of one client who didn't understand that her husband had dementia. The husband lost their entire financial nest egg through making bad business decisions and failing to pay taxes, Ambrose says, "and by the time she got involved, everything was gone." Eventually, the couple had to declare bankruptcy.
While the potential for fraud or age-related diseases can't be eliminated, family members can mitigate the impact by discussing those issues and other financial topics with their parents as they age. Those talks may not be easy, but the sooner they begin the better.
"Planning early and making the conversations about financial safety and security helps eliminate some of the emotional charge," O'Leary says.
How to start the conversation
Such important conversations can be tough for families, but one method to get parents comfortable with the idea of someone else looking after their finances is to shadow them. "It can be better if you can walk alongside them before you have to completely take over," O'Leary says.
One option is offering to periodically review Mom and Dad's accounts with them for potential problems. That could happen as little as once a month, when many bills get paid. "In my husband's case," O'Leary says, "at the beginning, he was double-checking his parents' finances and meeting with them monthly. Now he has full financial capacity for them."
But don't be surprised if attempts at discussing your parents' finances don't go according to plan.
"Sometimes the parents feel ambushed," Ambrose says. "If they shut you down, then respect that."
Consider a different approach, or a different messenger, Ambrose explains, such as suggesting your parents talk with a respected professional like a financial advisor or an attorney, for example.
Get estate documents in order
It's vitally important for families to have key legacy documents in place - and ensure they are current. First is the will, a document that details how an estate should get distributed. Most people understand the benefits of a will in estate planning, and that without one, heirs will likely be left grappling with government bureaucracy.
Perhaps less understood is the need for a power of attorney (POA) and a living will. Both are important when people start to lose their cognitive ability, Ambrose explains. A POA allows designated individuals to act on behalf of Mom or Dad in financial and legal matters, and can get drafted in a variety of ways. One option would let simple investment decisions get made, while another could encompass all financial transactions, including check-writing privileges.
It's vital to get the POA signed before a parent becomes incapacitated; if you don't, it restricts what you can do to help them meet their financial obligations. At that point, you'll need additional legal action to address your parent's incapacity and appoint a guardian or conservator. "It's a last resort, and the outcome is not guaranteed," Ambrose says.
A living will, otherwise known as an advance healthcare directive, details under what circumstances your parents would like to refuse medical treatment if they become incapacitated. Exactly what goes into this document will require a detailed discussion of your parents' desires."Care preferences are a big part of the discussion," O'Leary says. For example, do your parents want to age at home, or in a care home? "That should be considered early on," she adds.
A lack of a signed advance healthcare directive can leave you at the mercy of medical professionals. Doctors and nurses are required to follow strict rules, some of which may not match the desires of you or your parents.
"There are so many laws when it comes to transferring legal, financial and health care capacity," O'Leary says. "Without proper planning, the inevitable can turn into a crisis."