Looking after mom and dad
When you step up to take over your aging parents’ finances, will you know what to do?
When you step up to take over your aging parents’ finances, will you know what to do?
Six years ago, before Gerry Kowalchuk’s mom turned 80, he took a trip to Thunder Bay, Ont., where she lived in a small one-bedroom condo. She had no family and few friends there, and he wasn’t happy with the state she was living in. “Her eating habits were bad, she hadn’t had regular dental appointments for a while, and she wasn’t taking her medication regularly,” says Kowalchuk, who is 66 and retired. “Things needed to change if she was to continue living independently.”
So Kowalchuk invited his mother to his home in Niagara-on-the-Lake to celebrate her birthday. What he didn’t tell her was that she was never going back to Thunder Bay. “She wasn’t happy with me when she found out. She started crying. But I explained it wasn’t wise for her to live alone. She came around when she saw how much better her life could be.”
Over the next few months Kowalchuk helped his mom sell her condo and move to a cozy rent-geared-to-income apartment less than a kilometre from where he and his family live. “Mom has always been a good saver and lives minimally,” says Kowalchuk. “But as she got older, I could see she was overwhelmed. My brother is 13 years younger and living in Saskatchewan. She needed someone else to handle her finances and that someone else was me.”
It wasn’t an easy task. “Most people over 80 can’t complete forms that are 20 pages in length, or do their own income taxes,” says Kowalchuk. “Mom lives on $16,000 a year and there are Guaranteed Income Supplement forms to fill out, rental forms, and in her case, Veteran Affairs forms for a small pension my father left her.”
Turns out that to maintain their independence, older seniors like Kowalchuk’s mom need a lot of help with their finances—even if they have healthy savings. Home-care services need to be paid for, bill payments need to be set up, and investments need to be managed. “It’s a balancing act and the process is time-consuming,” says Kowalchuk. “But it needs to be done if you want your parents to age comfortably.”
Handling an elderly parents’ finances is made even tougher by the awkward role reversal. Aging parents are often reluctant to even share financial information with their children, let alone relinquish control. “The key in these situations is transparency and communication,” says financial educator and author Ruth Hayden. “Many people are already dysfunctional about money, and in these situations things can become very tangled very quickly.”
Lise Andreana, a consultant on aging and author of Financial Care for Your Aging Parent, agrees with Hayden, and adds, “I’m the oldest of 10 siblings as well as a Certified Financial Planner, but I found myself struggling to work with three siblings who had taken the lead regarding my elderly parents’ health and financial care. In many cases, you may have no choice but to pick a neutral person to oversee a parent’s finances.”
That’s why it’s important to do some advance planning, before your parents become incapable of managing their money themselves. Every family should have a plan to safeguard their elderly parents’ finances when the time comes. Here’s what you need to do:
If your parents are having trouble handling their finances, don’t expect them to come to you for help. If they’re like most parents, they don’t want to be a burden. So be on the lookout for subtle signs they may be having problems. If they repeat things often, or forget conversations you recently had, do some digging.
That’s what John Loogman, a 53-year-old Toronto guitarist, did when his father started experiencing debilitating memory loss three years ago. “My dad had been an accountant, played bridge often and had an active life in every way,” says Loogman, who along with his three siblings has recently had to make key decisions regarding how his father’s money would be managed. “So when he started forgetting lunch appointments and could no longer do his own taxes, I knew he was having memory problems.”
Other warning signs include parents having their drivers’ licenses revoked, getting lost frequently, or a drop in their level of personal hygiene—all good reasons to do more investigating. “Be aware you may be fighting an uphill battle for a while in convincing them they need help,” says Andreana. “But it’s important to persevere.”
Ideally, communication between parents and siblings should start well before a parent needs help. “The best time is when parents are around age 60,” says Hayden. “It’s just an intellectual activity then. The longer you leave it, the harder it becomes.”
But Maria Fuzesi of Thornhill, Ont., who managed her 83-year-old mother’s money for almost 20 years before her mother passed away last year, says for her it started much earlier. “Total trust doesn’t happen overnight,” says the 60-year-old. “My mother trusted me completely but it was a lifetime of building that relationship. I phoned often, wrote her letters when she lived in Hungary in the 1980s and always made her feel connected. That solid foundation of trust all life long is key.” Fuzesi also made sure to show her mother bank statements and explain how her money was invested. “I think she appreciated that I made sure to update her monthly.”
But Fuzesi was lucky—she is an only child. In many cases, it’s hard for siblings to work well together. One often feels another is taking advantage. “The family meeting is where the dysfunction will really come out,” says Hayden. “You’re 10 and eight years old again. The key to making it work is transparency.”
Start by having frequent family meetings—either in person or through Skype. Make sure all siblings, as well as your parents, are present. Everyone should also attend annual meetings with lawyers, accountants and advisers. That way, the family gets to hear all the discussions and ask their top-of-mind questions. “It provides total transparency—and its works,” says Hayden.
If one sibling takes the lead in arranging these meetings, make sure to show your appreciation. “Saying thank you goes a long way, mainly because the parents themselves often don’t say it,” says Hayden. And if one sibling is taking on a larger portion of the financial responsibilities, pay them for their time. “It’s the fair thing to do.”
Find out where your parents keep their safety deposit box and important documents. Make a list of their bank accounts and investment accounts, insurance documents, wills and the names of their accountant, lawyer and financial adviser. Heather Franklin of Toronto wishes she had done that 25 years ago when her dad passed away. “I had encouraged my dad to educate my mom on money, but he never did,” says Franklin, now a fee-for-service adviser. “When he passed away, I wasn’t about to start. So I just took over.”
Franklin remembers how after her father’s funeral, she took her mother back to the house, stuffed all the pertinent statements and bills into a bag and sorted it all on her own kitchen table that night. “My dad had accounts all over the place,” says Franklin. “He’d have a coffee with a friend on a Saturday morning, walk into a nearby bank and open an account. I ended up amalgamating everything.” Franklin says the task would have been easier if her father had simply kept a file or binder with all of this information. “I eventually opened a joint bank account with my mother, deposited her CPP and OAS cheques into it, and took over all bill payments—condo bills, insurance, all of it,” says Franklin. “She and my only sister, who lives 4,000 km away, were just happy someone was taking control.”
You should also find out where your parents’ income comes from, including government and employer pensions as well as RRIF withdrawals and any income from their investment portfolio. Find out who their beneficiaries are, what their financial wishes are, and how they want funeral arrangements handled.
It’s often about more than just money. “There are so many decisions to make—budgeting, downsizing, lifestyle considerations and arranging home help,” says Tom Feigs, a money coach in Calgary. “You don’t necessarily want finances to be the underpinning, but in almost all cases they will play a part.”
While both parents are alive, make sure all non-registered accounts are held jointly: otherwise the surviving parent will need a will and death certificate to access those accounts. Also ensure your parents have an up-to-date will and estate plan. A loss of capacity either suddenly, such as through a stroke, or gradually as with Alzheimer’s, may mean they never have the opportunity to clarify their intentions.
That’s why it’s also key to ensure your parents have in place a power of attorney (POA) for health care as well as for finances and property. A POA will often name a child as a substitute decision maker. “That person can sign documents, start or defend a lawsuit, sell property, make investments, and purchase things for the parent,” says Andreana, the author and adviser. “The POA usually comes into effect as soon as it’s signed and witnessed, but a parent can put a clause in saying it doesn’t come into affect until they’re incapacitated.”
Keep in mind the “attorney” named in a POA is different from the executor in the will: the attorney handles a parents’ finances while they are still alive. Parents can choose the same person to do both jobs, although they’re not related in any way. “Many people find the process of setting up a POA stressful because they worry it will cause conflict with their family members and loved ones,” says Andreana. “But conflict can often be avoided simply by having your parent inform everybody of his or her choice in advance, and the reasons he or she had for choosing that person.”
More than one person can be named: that way no one can act opportunistically and without accountability. “If you’re concerned about mismanagement of funds, make sure your parents include a clause in their POA document that requires the decision maker to submit periodic financial statements to your parents’ accountant, adviser or lawyer,” says Andreana.
If you find yourself managing your parents’ finances, keep your own money and property separate from theirs. Draw up a net worth statement and help them put together a household budget. Showing these to your parents’ accountant and your siblings can help everyone feel in the loop. “If you or your siblings need to spend money out-of-pocket on your parents’ behalf, ensure everyone is reimbursed,” says Hayden.
You can streamline the bill paying process—and create an automated record—by setting up an automatic payment plan at their bank. That way you’ll only have to keep track of bills that occur irregularly, like a furnace repair.
As you go through your parents’ financial statements you’ll probably consider managing their investments yourself. But unless your parents have a very small, simple portfolio—such as one made up of GICs and savings accounts—it’s a good idea not to. Loogman, who managed his aging father’s substantial stock portfolio for more than a year before turning it over to an adviser, agrees. “Even if you’re a savvy investor and get along well with your siblings, you’ll need help because there are so many small administrative things. Doing it right becomes a full-time job.”
In fact, Loogman found he was too busy to keep his father’s portfolio in balance and manage the withdrawals. “I was doing it the easiest way—not the best way,” says Loogman. “My dad never traded his stocks so there was a lot of rebalancing to do and it was overwhelming. When I took over, he had 90% of his investments in stocks.”
What worked? Hiring a team of experts, including an investment adviser, tax accountant and lawyer to handle all of his dad’s financial affairs. “We got lucky,” says Loogman. “My dad managed half of his stock portfolio himself and had an adviser manage dthe other half. So he had already done us the favour of finding someone he trusted.”
If your parents have an adviser, find out the basics of how their money is invested. “I have adult children sit in with their older parents at our annual meetings to understand the financial picture,” says Andreana.
But the truth is most financial planners aren’t portfolio managers. “I do taxes and planning—that’s it,” says Diane Dekanic, a certified financial planner in Calgary. “So I often give my clients advice on who to get to manage their portfolios.”
In general, if your elderly parents are working with a financial planner and have a portfolio under $1 million, Dekanic recommends you consider investing directly with a low-fee mutual fund company* such as Mawer Investment Management. “Firms such as Mawer have pooled investments for smaller accounts that are similar in structure to mutual funds but very cost-effective,” says Dekanic.
For portfolios of $1 million or more, you have other options. Dekanic recommends you find a fee-based investment counsel firm. The portfolio managers at these firms typically hold the Chartered Financial Analyst designation, the most respected in the industry. They manage portfolios on a discretionary basis, which means they make the decisions after you go through a rigorous process of specifying goals and guidelines in an investment policy statement, or IPS. These firms charge a fee based on a percentage—usually 1% to 2%—of the assets they manage, with larger accounts getting the lowest rates.
There are three categories of investment counsel firms—bank-owned firms, the large independent firms, and smaller boutiques. The right choice depends on what you’re looking for. Bank-owned investment counsel services are often part of an overall “wealth management” division and may include access to experts in financial planning, taxes, estate planning as well as investments.
Independent and boutique firms may offer more personalized services and many have a reputation for solid money management. A good source of leads is the Investment Counsel Association of Canada website (investmentcounsel.org) which lists all its members by minimum account size and by the province in which they operate. Also keep in mind that if one of your parents is a member of a professional organization—such as the Canadian Medical Association—you may be able to get wealth management services for less.
Whatever you decide, visit three firms that interest you. Ask questions about their investment philosophy and performance, the scope of services they offer, their cost and their investment performance. Choose the one you feel the most comfortable with. It can be liberating to place your parents’ savings in the hands of an expert, but stay engaged with your parent’s planner and investment adviser. You’ll need annual check-ups to inform them if goals have changed, if big purchases need to be made, and to ensure the portfolio is performing well.
“With longevity on the increase, helping our parents manage their money is something that probably awaits most of us,” says Kowalchuk of Niagara-on-the-Lake. “I’m the key person in my aging mother’s life right now and I plan to keep her—and her finances—in tip-top shape so she can continue living the full life she deserves.”
Handling your elderly parents’ finances isn’t made any easier by the awkward role reversal. They may not want to share financial information with you, let alone give up control. ‘Many people are already disfunctional about money, and in these situations things can become tangled very quickly.’
Are you prepared to handle difficult decisions on behalf of your aging parents? Communication is key.” The elderly fear a loss of control and independence in their lives,” says Lise Andreana, author of Financial Care for Your Aging Parent.
You can start by asking your parents these key questions to ensure your family is prepared for the road ahead.
1. Where do you keep your important papers—wills, investment account statements, life insurance policies, and others. Have you prepared a list of all your important papers with relevant contact information? “Explain that if something were to happen to your parent, knowing where the important papers are will help family to step in and act as quickly and easily as possible,” stresses Andreana.
2. Do you have a current will? Where do you keep it and when was the last time you updated it? “The will should be no more than five years old,” says Andreana. “The will, executors and beneficiaries should be reviewed after the death of a spouse to ensure your remaining parent’s wishes are reflected.”
3. Have you prepared power of attorney (POA) documents? A POA designates who will take care of your affairs if you are unable to do so because of illness or cognitive decline. Your parents can designate one person to handle health decisions and another for financial decisions, or they can designate one person for both roles.
4. Do you have a safety deposit box? If so, at which bank, and where do you keep the key?
5. Where are your bank accounts? If you are incapacitated, where would I find the PIN and account information?
6. Do you have credit cards and if so, who are they with? Have you been paying the balance off every month?
7. Do you have a financial adviser, lawyer or accountant, and what is their contact information?
8. Do you have life insurance policies? Who is the contact agent?
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