How do I Help my Parents with Money Problems

Today many people are taking care of parents. Having a discussion and boundaries between parent and child, as well as seeking professional advice, can help.

According to a 2019 study by the Transamerica Center for Retirement Studies, 8% of Gen Xers and 3% of Boomers say supporting their parents is a top financial priority in their lives.  Similarly, a study from TD Ameritrade found that 13% of Americans are supporting a parent, including 19% of millennials.  With so many individuals taking care of parents, it is important both everyone to be prudent

Next Avenue’s recent article entitled “When Your Parents Need Financial Help” says that if this is a financial priority for you, try a respectful approach to see the extent of your parents’ money issues and what you might be able to do to help.

There is one financial issue that your parents may have. They may have failed to set aside money for long-term care, because of their debts.  Ideally they would start planning well before they are dependent, but there is no time like the present to address a problem.  For long-term care assistance, ask an elder law attorney for help. We can investigate your parents’ eligibility for Medicaid or other benefits to help pay for care.  This article has a much fuller overview on those issues.  https://www.galliganmanning.com/long-term-care-whats-it-all-about/

However, before you jump in with both feet, consider your own money situation. Remember your own finances come first, because it you don’t, you risk your own finances by overcommitting. Therefore, if you can afford to help them, you have to establish boundaries. If you have siblings, bring them into the discussion and ask about sharing the responsibility. After you figure out to what extent you can afford to help financially, reach out to your parents — with care. You don’t want to come off as criticizing or judging them for making financial mistakes or bad financial decisions.

It’s important to begin the conversation early when taking care of parents, especially financially. You also may want to refer your parents to a financial planner or to a credit counselor. If housing is a major expense, it may be time for your parents to downsize to a more affordable home. You can also look into having them move in with you.  If not a topic of discussion, perhaps you’re able to review their expenses to see what they can cut and help them find ways to improve their financial situation. You should also look into federal, state, and local resources, like benefits for which your parents may be eligible.

It may be an issue of diminishing capacity and worth discussing with your parents’ doctors.  I once had a client who almost overnight spent thousands of dollars on QVC.  She spent because it was on TV and had no concept of how much she purchased or how much she spent.  Having family involved before hand may help eliminate or reduce those issues.

After you’ve delved into all the resources, and you’re also ready to help your parents financially, make sure you incorporate all of this into your own financial plan. Instead of handing your parents cash or a check to pay outstanding bills, pay the bills yourself. This will allow you to be certain that the money is actually used for the bill, rather than something else.  You can best accomplish this as the agent for your parents under a power of attorney or as trustee of their living trust.

Many people taking care of parents also choose to provide for their parents in their estate plans. It is very common to do so, but if you do, consider leaving assets to your parents in a trust, such as a supplemental needs trust.  That way, they receive the benefit of the money while protecting assets, preserving Medicaid eligibility and avoiding many of the problems this article is addressing.

Ensure that your parents know that you have their best interests at heart, when assisting them with long-term care. Be respectful of your parents and tell them you’re not trying to take over.  Taking care of parents doesn’t have to be a fight, it should be about everyone helping each other.

Reference: Next Avenue (Jan. 30, 2020) “When Your Parents Need Financial Help”

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Long Term Care Insurance in your Retirement Plan

Include long term care insurance in your retirement plan to protect your legacy from rising costs such as the nursing home, assisted living and in-home care.

Roughly 60% of those turning 65 can anticipate using some form of long term care in their lives, according to the U.S. Health and Human Services Department. It may be a nursing home, assisted living, or in-home care.  Long term care insurance is a great way to cover those costs.

CNBC’s recent article, “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan,” reports that over 8 million Americans have long term care insurance. However, the cost of that insurance is rising. This increase is because of several factors, including the fact that companies underpriced their policies for years and misjudged how many would drop coverage.

Because of those rising premiums, some individuals may choose self-insurance. That means saving a pool of money to earmark for long term care. Coverage is also available through Medicaid, which has eligibility requirements.

Even with these increases, you should consider purchasing some form of coverage. This is because not being insured can be the biggest devastator of a financial plan.

The rule of thumb has been to buy LTC coverage at age 55. However, it really depends on your situation. The big unknown is health, and the odds of being able to qualify for coverage at age 60, compared to age 30 or 40 is vastly different.  See here for a fuller description.  https://www.galliganmanning.com/when-should-i-consider-long-term-care-insurance/

A traditional LTC policy will cover the costs of care for a certain period of time, generally up to six years. The amount of coverage is based on the average cost of care for your location. Most insurers offer it in the form of a monthly benefit, and possibly with some inflation protection.

There’s also a hybrid policy that covers long term care costs but becomes life insurance paid to heirs, if it’s not used. Of the 350,000 Americans who purchased long term care protection in 2018, 85% chose the hybrid coverage. It’s also called combo or linked-benefit. The big difference is price: you’ll pay more for the hybrid policy.

Medicaid is another option, particularly if you don’t have a way to save. To be eligible, you must meet financial guidelines.  Medicaid also looks back five years into your finances, so if you have given away any money during that period of time, it may be subject to penalty.

Long term care insurance is a great tool to address rising long term care costs in your retirement.  If you don’t have or can’t get a policy that’s right for you, an elder law attorney can help explore Medicaid or other benefit options to cover your long term care needs.

Reference: CNBC (October 14, 2019) “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan”

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When Should I Consider Long Term Care Insurance?

Many people haven’t adequately planned for long term care costs. Consider long term care insurance early as a way to cover those costs.

You can bet that you won’t need long term care in your lifetime, but you’ll probably lose that bet: about 70% of seniors 65 and older require long term care at some point. That could be just a few months with a home health aide or it could mean a year (or more) of nursing home care. You can’t know for sure. However, without long term care insurance, you run the risk that you’ll be forced to cover a very large expense on your own.

The Motley Fool’s recent article, “75% of Older Americans Risk This Major Expense in the Future,” says many older workers are going into retirement without long term care coverage in place. In a recent Nationwide survey, 75% of future retirees aged 50 and over said they that don’t have long term care insurance. If that’s you, you should begin considering it, because the older you get, the more difficult it becomes to qualify, and the more expensive it becomes.

If you do not purchase long term are insurance, but need to pay for long term care, there are other options, such as government benefits like Medicaid.  I’ll focus on insurance in this article, but see here for more information about long term care and how to pay for it.  https://www.galliganmanning.com/long-term-care-whats-it-all-about/

Long term care insurance can be costly, which is why many people don’t buy it. However, the odds are that your policy won’t be anywhere near as expensive as the actual price for the care you could end up needing. That’s why it’s important to look at your options for long term care insurance. The ideal time to apply is in your mid-50s. At that age, you’re more likely to be approved along with some discounts on your premiums. If you wait too long, you’ll risk being denied or seeing premiums that are prohibitively expensive.

Note that not all policies are the same. Therefore, you should look at what items are outside of your premium costs. This may include things such as the maximum daily benefit the policy permits or the maximum time frame covered by your policy. It should really be two years at a minimum. There are policies written that have a waiting period for having your benefits kick in and others that either don’t have one or have shorter time frames. Compare your options and see what makes the most sense.

You don’t necessarily need the most expensive long term care policy available. If you’ve saved a good amount for retirement, you’ll have the option of tapping your IRA or 401(k) to cover the cost of your care. The same is true if you own a home worth a lot of money, because you can sell it or borrow against it.

It’s important to remember to explore your options for long term care insurance, before that window of opportunity shuts because of age or health problems. Failing to secure a policy could leave you to cover what could be a devastatingly expensive bill.

Reference: Motley Fool (September 23, 2019) “75% of Older Americans Risk This Major Expense in the Future”

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