Talking Money with Mom and Dad

Talking to your aging parents about money is about as comfortable as talking to your children about sex. It's a conversation you'd rather not have but one that responsibility dictates.

"Money is a sensitive area to begin with," said David Boon, a Chicago manager for Deloitte & Touche's Financial Counseling Services. "Some people use it as a scorecard of success. For some it's a symbol of security. Some say it makes them feel better to spend because they want nice things. When you combine the different attitudes towards money with family issues that can exist between children, siblings and parents, the potential problems can multiply."

Because the situation is a delicate one, too many people simply put it off, said Mary Sherba, a senior manager in the Financial Counseling Services' Stamford office. That's an enormous mistake.

"Don't wait for your parents to bring it up, because generally they won't," she said. Consequently, you may find out too late the answers to such important questions as:

Have your parents saved enough to retire? Have they prepared all the necessary documents - will, living will, trust, financial and health powers of attorney? Can they tell you where they keep their important documents? Those aren't the types of questions you want to ask in the midst of a family crisis, especially if the answers are discouraging. Rather, you need to know what estate plans your parents have made. The best way to do that is to arm yourself with answers. Here's a basic checklist of the questions children should ask their parents:

Do they have the necessary documents? Make sure your parents have prepared a will and have kept it updated. But don't stop there. A will details how assets should be distributed. If a person's assets are less than $650,000 a simple will will probably suffice. The tax code currently allows people to pass as much as $650,000 to individuals or trusts without incurring federal estate taxes. That amount will gradually increase to $1 million by the year 2006, Boon said.

Married people with larger estates should consider a two-share plan (also know as a bypass or A/B trust). A two-share arrangement enables high net-worth individuals to take advantage of their unified credit ($650,000 per person in 1999) and potentially pass $1.3 million dollars to beneficiaries free of federal estate taxes. By coordinating the unified credit with the unlimited marital deduction, no federal estate tax will be due upon the passing of the first spouse and $650,000 will be removed from estate of the second spouse while being available for her/his support. This results in well over $200,000 passing to beneficiaries that could otherwise pass to the government in the form of estate tax.

A trust safeguards assets from probate, minimizes legal fees after death, and provides for financial control of trust assets in the event of a person's incapacity. Unlike a will, a trust is a private document. In both the case of a will and a trust, how assets are titled is a critical issue.

An estate-planning attorney can help determine when it makes sense for assets to be titled jointly and when they should be held separately. He or she can also explain when it makes sense to name a spouse as a beneficiary and when a trust makes more sense.

A living will describes a person's wishes regarding health care and finances in the event that they become incapacitated. Durable health care powers of attorney empower someone they name to carry out those wishes for them.

Can parents direct you to their financial records? If your parent passes away or becomes incapacitated, you'll want to locate all their financial records. To facilitate that, ask your parents to make a list that includes institutions they use and the account numbers associated with their bank accounts, mortgage and loans, investments and retirement accounts. The list should include contact names, addresses and phone numbers and the physical location of important documents, such as the deed to the house and car registration. The list should be kept where others can have access to it in an emergency. Ask your parents to share a copy of the list with you.

Do they understand the risks? Thanks to longer life spans, people need to plan for longer retirements. In addition, they need to take factors such as inflation and long-term medical care into account, said Sherba. While your parents may think they've saved enough money and are anxious to start gifting their assets, make sure they've considered every eventuality.

What are their life insurance needs? If your parents have a life insurance policy, discuss whether or not it is still necessary. Most retirees no longer need life insurance for liquidity, said Sherba, but some individuals with a large net worth might want it to cover the cost of estate taxes when they die.

What are their wishes? There's a lot that isn't included in the documents. Would they prefer cremation or burial? Is there an assisted-living facility that they favor? These aren't the types of discussions that spring readily to one's lips, and they need to be addressed delicately. Still, if your parents have any strong feelings about them, they need to be shared, either in conversation or in a memorandum that can be included in the document inventory.

Like medicine, discussing finances with aging parents may have a bitter taste, but in the long run, it's essential to the financial health of the family.

Tips for handling "the talk"

Let's face it, "The Talk" calls for bringing a lot of heady issues to the fore. In broaching the issue you're asking your parents to contemplate death and to bare their financial souls. With those types of issues in play, the subject may not be easy to bring up. Manager David Boon and Senior Manager Mary Sherba, both of Deloitte & Touche's Financial Counseling Services, suggested a handful of approaches:

-- Describe your own plans. Describing the estate-planning measures you yourself have taken might enable you to broach the subject with your parents or at least plant the idea. You might even suggest your parents contact the planner with whom you are working.

-- Make your motives clear. Parents need to know that you are interested not in their assets, but in making sure they are cared for and their wishes fulfilled.

-- List the cons of not being prepared. Preparing an estate plan enables people to minimize estate taxes -- which range from 37 percent to 55 percent of the assets a person owns or controls at death -- and make the most of their bequest. Remind your parents that they can do anything they want with their money, but if they don't take action, Uncle Sam will be the prime beneficiary.

-- Choose an emissary. One sibling may be better suited to raising the topic either because he or she has a particularly close relationship with the parents or because he or she has a strong financial orientation.

-- Compromise. If you can't get your parents to talk to you about their financial decisions, try to get them to share their situation with an estate planner. It may be easier for them to describe their finances with a non-family member and a professional.

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	Talking money with Mom and Dad Personal Finance Advisor by Deloitte & Touche OnLine May 31, 1999