Archive for May, 2011

Reasons to mind your Parents’ Financial Business

The old saying goes “Once an adult, twice a child”. If you are blessed you will one day know what this saying really means. Either because your parents will get old and need you to care for them; or you will get old and need your children to care for you. If you are blessed and lucky both will happen. Regardless, you should not wait to have conversations about money and how things should be handled until it is too late and someone has lost the mental of physical ability to have a direct conversation. I was reminded of this yesterday on Mother’s Day while visiting my parents.  We had a brief conversation about a matter they needed my help with. It is unique a situation for parents and children to have open conversations about finances.

There are many reasons your parents need you minding their financial business but I’m going to talk about four very quickly.

1.Things get more expensive in the future

You can be debt free and have your house paid off but it will not stop the cost of bread, eggs and gas from going up in the future. Gas was $1.16 in 1990. Everyday people who live in paid off homes and are debt free are struggling with $4.00 gas and $4,000.00 property taxes.  As a family you must sit down with an adviser and talk about how to prepare for the future. Parents are not prepared for $8.00 gas and $12,000.00 property taxes, but those things will happening anyway.

2. If you get sick and need government help the government expects to take your assets down to your last $2,000.00 before they will help you. This is avoided ONLY by proper planning.

Hopefully your parents and older relatives will live a long time. Of course, living  a long time means possibly being ill from time to time. This is a fact of life and so there is a safety net called Medicare. Medicare is a good safety net for a lot of Americans who can’t afford medical care. Here is what you don’t know about Medicare.If you get sick and need medicare to help you they will take up to your last $2000.00 in assets before they will pay a dime. In addition, they will do a five year look back into your finances and if you transferred assets out of your name to other people in that time they want that money too!

There are lots of people who are not rich but they are not poor either. Getting sick even once can and does wipe out a life savings. Chemo is expensive, hip replacement is expensive, rehabilitation is expensive, nursing homes are $5,000.00 per month and up.

Losing everything can be totally prevented by getting paperwork in order and making sure assets are titled properly.

 3. Today’s financial instruments are complicated.

Do you know what a reverse mortgage is and how it works?  Do you really know or do you know what you have heard?  In almost 2 decades of talking to people about money few take the time to learn about options until they are in trouble. The wealthy use instruments like reverse mortgages, insurance , and annuities while the middle class and poor use IRAs, mutual funds, and live in paid off homes. You need to understand the reasons for this. Your family needs to protect everything your parents have worked for.


 4. Well advised families take advantage of the fact that nobody lives forever. Many middle class families with a great advising created generational wealth from this absolute certainty.

Only two things in life are certain, death and taxes.  GE found a way around the tax issue but no one lives forever. Every person in your family could use their mortality to generate 1 to 2 million dollars for the family trust fund. If the principal of that fund was not touched,  the interest of that fund could pay future generations. How well off would your family be in two generations?

People always talk about the trust fund babies but a lot of trust funds are no more than simple insurance policies and annuities. A family had the foresight to set this up a generation before. Parents think all they have to leave their children is a house. Most children sell their parents’ homes. That money might have bought the parents an even larger insurance policy or allowed them to generate and even greater nest egg.

These conversations need to happen because the law of unintended consequences is lurking in the shadows.  So many missed opportunities because of poor planning. Some think they are so well off there is no need to plan further ; others don’t think they have enough assets to warrant a plan. Both are wrong.

 Mind your parents business and watch your own financial IQ grow.

Mark Fuller

Manager of  Wealth


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