Probing your parents' finances

[randell]

from http://business.inquirer.net/money/pers ... e_id=90523

TAKE CHARGE OF YOUR MONEY


INQUIRER.net
Last updated 09:23am (Mla time) 09/25/2007

Question: I am the youngest of four children, and my parents are both in my care. They are financially independent but they choose to stay with me to enjoy their grandchildren. My father just celebrated his 70th birthday and it has made me wonder about the status of their finances. I hesitate to start a discussion with them, but not asking seems irresponsible. Any advice? – David

Answer: As parents get older, the roles reverse: we find ourselves taking care of our parents, and they turn to us to look after them.

One of the areas we need to look into is the matter of their finances. In the event of your parents' death or sudden illness, do you know how to take care of their assets? Talking to aging parents about their financial circumstances can be uncomfortable, but knowing the state of their assets now will bring you and them peace of mind.

As a start, here are five questions that should give you and your siblings a better picture of your parents' financial status.

1. What are their assets? Aside from the house you grew up in, do you know what other investments your parents have? Ask about bank deposits, trust placements, real estate investments, equity investments, and the like. Tell your parents that you need to know about them and where the documents are so that you will be prepared should they get sick or pass away. Assure them that you are not out to get your hands on them now; it is for their sake that you want to know the whole picture.

2. Do they anticipate needing financial support? If your parents are already retired, ask if they were able to set aside funds to support their lifestyle for the next five, ten, or even twenty years. If they were not able to do this, ask if their investments can generate enough income to finance their retirement. In case they were not able to prepare adequately, ask how they plan to live out the rest of their retirement and if they need financial support from you. If you have siblings, this is a good time to ask them to share in the cost of supporting your parents. Usually, health care costs escalate as a person grows older.

In case your parents are not yet retired, suggest that they plan for their retirement by taking out a pension plan or making investments that will generate enough income for them in their retirement years. Bonds are a good investment as they usually give interest income higher than what bank deposits offer, and yet they are deemed less volatile than equities. Suggest that they talk to a financial planner.

3. What types of insurance do they have? And who are the beneficiaries? Your father may have taken out a life insurance policy and forgotten all about its terms and conditions. Ask if you can look at the insurance policy itself. The policy may cover accidents and disability too, aside from life. See what preexisting illnesses are excluded from the coverage. Read the fine print on how to file a claim should you need to. Ask also about the beneficiaries – if your parents want to revoke them and include or exclude someone, now is the time to do it.

Life insurance policies may be term or whole life. As the name implies, term insurance is only for a limited period of time. If your parents have this kind of life insurance, see if the policy is still valid. Whole life insurance insures the person for as long as he lives, usually up to 99 or 100 years old.

If your parents still work, they will most likely be covered by a group insurance policy taken out by their employers as part of the benefits offered to employees.

Know what other insurance or pre-need policy your parents may have, such as home insurance, fire insurance, memorial plan, pension plan, etc. Most importantly, ask where the policies are kept.

4. Have they signed a power of attorney? A power of attorney is a written document that authorizes a trusted person to do transactions on behalf of someone. This will be beneficial when a parent gets very sick. The person named can do banking transactions and manage assets on behalf of the person granting the power of attorney. Let's say a parent gets confined in the intensive care unit of a hospital. The trusted person named in the power of attorney can sell off a property to generate funds to be used to pay the hospital bill. This power of attorney expires when the parent dies.

5. What are their liabilities? While your parents are still living, it is wise to ask them the extent of their liabilities. If there are documents involved (such as promissory notes, etc.), ask if you can look at them. This may also be a good time to discuss how these debts can best be settled. If funds permit, why not pay off the debts earlier? Interest expense may go down as a result of early payment. Inquire, too, if they have committed to be a co-maker of a loan made by a friend or otherwise acted as guarantor in some other debt. This is important as it will greatly affect their finances should the debtor be unable to pay.

It is always good to plan for the future, even if we may not want to think about the inevitable. Doing so will help your family cope with whatever may come your way someday.


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J. Randell Tiongson, RFP®
http://www.rfp-philippines.com/