Dear Mom and Dad: We Need to Talk About Your Finances

Talking about money with loved ones is never easy, and we've devoted several episodes to this prickly topic -- one on how to peacefully manage money with your mate and another on raising grounded, generous kids who are smart about money. Now it's time to check in with your elders.

This installment of Motley Fool Answers presents strategies for starting the conversation with your parents or elderly relatives, a checklist of things to cover, and warning signs worth watching. Our email is [email protected]. Don't forget to tell your friends about us and rate us on iTunes and Stitcher.

 

ALISON SOUTHWICK:

This is Motley Fool Answers. I'm Alison Southwick and I'm joined by Dayana Yochim and Robert Brokamp, your fearless leaders in finances here at The Motley Fool.

Today we're going to have a conversation about an awkward conversation -- the one you have with your parents -- and we're not talking about that birds and the STDs chat before you send them off to The Villages.

ROBERT BROKAMP:

[Laughs]

ALISON SOUTHWICK:

Nope. We're going to talk about how to talk about money with your sometimes aging but still totally capable and smart parents. We'll help you broach the subject; give you a checklist of what to cover, and also some red flags to look out for.

So, Robert and Dayana, would you rather try to explain Tinder to your parents ... or ask how much money they've saved for retirement?

ROBERT BROKAMP:

I personally am still very fuzzy on Tinder, myself, so I'm going to go with the money.

DAYANA YOCHIM:

Yeah. Me, too.

ALISON SOUTHWICK:

The inspiration for today's show comes from Patrick in Phoenix who writes (and by the way, I'm paraphrasing), "My parents are approaching retirement after long, hard-working careers. It's only been in recent years that I've been able to have even vague conversations about their financial situation. Along with many baby boomers I hear hints of uncertainty about their nest egg and how they can make the most of it."

So Patrick wants to know, "How should I make suggestions while less experienced and being somewhat outside the circle of knowledge of the entire situation?"

You can read from Patrick's email that there's some amount of trepidation. No one really enjoys having this conversation. Why is it so hard to talk to our parents about money?

DAYANA YOCHIM:

This is super tough, and one of the reasons is what I call the "Freaky Friday Factor." You go from the child they have to look out for to the semi-independent adult who occasionally asks them for financial advice or actual money, and then you're a fellow grown-up. You're on equal terms. When you broach this topic, the relationship can flip-flop with you taking on the parental role (at least that what it seems like).

And another thing that makes it hard is when an aging parent is having a hard time accepting the limitations of their aging. Or they may feel like you're trying to get them to give up control of their finances.

ROBERT BROKAMP:

Money can be difficult, too, because there could be judgments. When you start talking about how you spend your money, and what you want to do in retirement, or how you invest, sometimes people don't agree on that. Certainly parents might be uncomfortable being told by their kids, "You're not investing very wisely. You don't know exactly what you're doing. I wouldn't spend my money like that." That can be difficult, as well.

DAYANA YOCHIM:

"Mom and Dad, go to your room! You're not investing properly!"

ALISON SOUTHWICK:

"Time out!" So then how do you broach the subject so that it comes from a place of -- a happy place? Helping, and nurturing, and not at all pandering.

DAYANA YOCHIM:

Well, first make it clear you're having the conversation out of love and concern -- and not greed. This isn't about the money and who gets what.

ALISON SOUTHWICK:

What if it is about the money and who gets what?

ROBERT BROKAMP:

[Laughs]

DAYANA YOCHIM:

Then you don't state that overtly.

ALISON SOUTHWICK:

OK.

DAYANA YOCHIM:

It's about making sure that someone has permission and clear directions on managing their financial affairs the way they want them managed -- just in case there's a time when they can't do so themselves.

Another approach is to tell them you've done this work for your family and that it really helped ease your mind. How it feels like a weight off of your shoulders because you've got all your important papers in order and you've informed the right people about what to do.

ALISON SOUTHWICK:

I can hear our audience being like, "Oh, right. I maybe haven't done that myself."

DAYANA YOCHIM:

Yeah, so this is good advice for you to do it. It really does ease this burden. It's the best gift you could give your family, especially because you don't want them going through this stuff in a time of crisis.

ROBERT BROKAMP:

You just want to tell your parents (or any of your family), "I just want to make sure everything's OK." In this situation, someone is going to go into retirement. In a lot of ways that is an irrevocable decision in terms of taking certain benefits (Social Security, your pensions). You say, "I just want to make sure you're OK. Here are some thoughts I have about it. Here are some resources for you."

And along the lines of doing it for yourself, it's sort of like when you see a great TV show that you love. Or some new restaurant you went to you want to tell people about. It's going to be like, "I went to a financial planner," or, "I read this great book," or, "I listened to this awesome podcast. It's been a huge help for me and I think you should do it, too."

DAYANA YOCHIM:

Another way is to avoid the emotional route. Go with a nuts and bolts approach. I started the conversation with my parents when I found this one book. It's like a binder file called The Beneficiary Book. In it you record everything from your family medical history, to the dog's vet's name, to a rundown of your safety deposit box content, and all of the important information and contacts that someone would need to know to basically get the whole picture.

ALISON SOUTHWICK:

And is that a book that you get at like Amazon or...

DAYANA YOCHIM:

I think so. It's called The Beneficiary Book. Martin Kuritz. He has his own site at active-insights.com. So it's, "Happy anniversary, Mom and Dad. Here's the book. Could you write down all of your account numbers? And also how much is Jordan getting in the will?"

ROBERT BROKAMP:

[Laughs]

DAYANA YOCHIM:

It's a good way to say, "Hey, check this out. See if it's something that you could use." Again, use it for your own family and your own affairs so you know how long it takes to fill out ... and you could even talk about that.

My parents actually got a copy of the binder for my grandmother's affairs, as well, so they filled that out and said it was a great help.

ALISON SOUTHWICK:

So not only does Dayana recommend it, but Dayana's parents recommend it and approve.

ROBERT BROKAMP:

And it's another one of those things that it's not just for one family member or one household. If everyone in the family can do this, that's great, and if you are comfortable talking about it, that's great, too.

In my family we have me, the financial guy. We have a doctor. We had a dentist (an ex-brother-in-law, but my sister ran his business). So you start these conversations and the experts weigh in on different things, and it's a great resource. Or even for someone who is not a lawyer but they say, in the course of this conversation, "Oh, yeah. I went to a lawyer and I learned this."

Once you get the conversation going with everyone, you're going to learn things that are good for you to do, as well. And any one of the issues, here, that Patrick brought up is having these conversations when you may not be the expert.

And that's a good point to bring up, too, especially with your parents. You're coming at this saying, "I'm not Mr. Know It All, either. There may be some things we could all do to learn a little bit more about this, but to get that ball rolling now will benefit you, as well."

ALISON SOUTHWICK:

So once you have convinced your loved ones to sit down and have a talk about finances and their money life, what are some of the things you need to make sure you want to cover?

ROBERT BROKAMP:

So the first thing to think about is all the boring legal documents --wills, healthcare directive. Things like that. Who's going to handle your finances if you were to become incapacitated and you get a durable power of attorney so someone could pay your mortgage, and do your taxes, and all that stuff.

The other thing you need to be aware of is people should start looking at their assets and their debts. And this is tricky, because not all parents are going to say, "Oh, yeah. I'm worth this much and I owe this much." They may not even want to tell you. Like, "Oh, yeah. By the way, I'm 65 and I have $30,000 in credit card debt." The more you could find out that stuff, or at least have them work on it with someone they trust, the better off they're going to be.

A lot of discussions should be about long-term care. Long-term care for most people is not a nursing home. It is somebody coming to your house and helping you with shopping, or cleaning, or something like that. For most people, that's a family member. Who is that family member going to be? In most cases, it's going to fall on the oldest daughter. That might be something she wants to do and it might be something she doesn't want to do. It's a good thing to have that conversation now rather than later.

Then there are funeral arrangements -- of course, not very fun to talk about. But when you look at the top scams that are perpetrated on seniors, they often have to do with funeral arrangements because they're vulnerable. They have a lot of money -- generally older folks have bigger nest eggs -- so they get sold things that they do not need, like a coffin when a person is going to be cremated.

ALISON SOUTHWICK:

And when you can get a perfectly good coffin at Costco.

ROBERT BROKAMP:

It's true. It's true.

DAYANA YOCHIM:

I love what you've done with the place. That contrast piping! Fantastic!

ROBERT BROKAMP:

Oh, my gosh! [Laughs]

ALISON SOUTHWICK:

And that whole palette of coffins!

ROBERT BROKAMP:

There are actually designer coffins. There was one design -- I guess it was like Led Zeppelin -- and it was called "The Stairway to Heaven." And you can get stuff like your team logo. Your college.

DAYANA YOCHIM:

Oh, boy.

ROBERT BROKAMP:

Pretty fun. Anyway, I read earlier about a scam in which the scammers are looking at the obituaries, find someone who's passed away, go up to the widow or widower and say, "Hey. Your deceased spouse left this to be delivered. Here's the box, but you have to pay. It's cash on delivery. So you pay me the hundred dollars and here's the package." Then in the end it's full of used magazines or something.

ALISON SOUTHWICK:

That's horrible!

ROBERT BROKAMP:

Yeah. So to have as much of that planned out (the arrangements, what you want to happen to your remains, all of that exciting stuff) beforehand and documented so there's no argument about it, the better.

DAYANA YOCHIM:

Yeah. And a couple of extras that you could go through with them on this checklist of things that you should cover: A household inventory -- their possessions, their heirlooms, boats, cars, Segways, the contents of the safety deposit box. All of these things -- it's nice to have an inventory of them for insurance purposes. But also when you're going through, say, an estate, you have certain wishes. You'd like something to go to a particular person. You can stipulate that in your will, but also it's nice to have it elsewhere for family members to go through.

ALISON SOUTHWICK:

I think my mom actually went through a bunch of stuff in the house and put little Post-its on it. She was like, "You would not believe. Some of the ugliest stuff is actually really valuable so I don't want you throwing it out." She also wrote little notes about like the history of some of the stuff. Some of the little notes are in my grandmother's handwriting, too.

ROBERT BROKAMP:

That was nice.

DAYANA YOCHIM:

Another helpful document or folder of things is the "Open This in Case of Emergency" file. Maybe you're not experiencing a fatal thing, but just a smaller incident. Everything is contained in one file with directions: Here's my primary care doctor. Just in case of an emergency -- right in the moment -- so that someone doesn't have to rifle through a bunch of papers.

ROBERT BROKAMP:

Right. A longtime reader of my Rule Your Retirement service creates what he calls his "Letter From Your Dead Husband" every year. It's for his wife to open up should he pass before she does. In it is everything. Like, here are the experts to go seek. Here's the person to get investment advice from. Here's the person not to get investment advice from. What's in various file folders. Here are all the passwords.

ALISON SOUTHWICK:

Netflix account.

ROBERT BROKAMP:

All that stuff. Here's what we have on automatic bill pay. Because once you set that up, you never think about it again. We've actually created at The Motley Fool a whole checklist based on it for how to create your own letter. And you don't have to give it away.

I often think when, Dayana, you suggest giving people The Beneficiary Book, people may feel like, "Well, I have to fill it out and then share it with everyone." It's great if you can, but you don't have to. You just have to tell people where you keep it and probably have more than one or two copies in various places. But having that all laid out for someone, so if someone passes away, you don't have to figure all that out.

And the less that is laid out, the more it's going to cost you in terms of time and maybe lawyer fees. If someone has a safety deposit box and you don't know where it is, and you don't have a right to get into it, that's actually a legal pain in the "you know what" to get into that. The more it's all laid out -- someone is set up with all those permissions -- it's going to save you money. It's going to save you grief. It's going to make it a lot easier on everyone.

ALISON SOUTHWICK:

So that covers a few of the things on the checklist, which you can download in .pdf version here: Wealth Defense: Checklist for Writing Your Own "Letter From Your Dead Husband."

ROBERT BROKAMP:

Well thank you very much.

ALISON SOUTHWICK:

Yeah, I would say that even if you weren't sitting here and listening. So what should you do if your parents really don't want to have the conversation?

DAYANA YOCHIM:

If you're getting the cold shoulder from them, it's understandable. It's an uncomfortable topic. But what you can do is let them set the boundaries. Tell them you don't need to know specifics about anything that they're not comfortable sharing and that you understand they have a right to keep certain things private.

But at the very least that you'd like to know two things: 1) That they have some sort of plan in place, and 2) that the people who are responsible for implementing that plan know how to take care of business when the time comes.

ALISON SOUTHWICK:

And do you need to know the name of the person who's supposed to take care of business? Because I can imagine an older person being like, "Oh, I totally trust this guy, Larry. He's great. He's going to be wonderful with my money." But then if you actually knew Larry, you'd be like, "No. There's no way in heck I'm trusting these people with my parents' estate."

DAYANA YOCHIM:

Well, you need to know who to contact. There's only so much you can do. If this is how they want their affairs handled, then that is their business. It is their life. Their finances.

ALISON SOUTHWICK:

Of course, often it's not just you wanting to have the conversation with your parent, but you have siblings, as well, and that always makes things so much more fun.

DAYANA YOCHIM:

[Laughs] It's super interesting to get the whole family involved.

ALISON SOUTHWICK:

Yeah.

DAYANA YOCHIM:

Well, if you're taking the lead on this, part of your responsibility to your parents is to keep your siblings aware of what's going on, and you can help avoid tension by sending out or giving periodic updates about these things. So it really may only start and end with, "Here. They have filled out all their important paperwork. Here's the contact information." Period. Done. If nothing changes after that, then great.

ROBERT BROKAMP:

You definitely want to give them a heads-up, because you don't want there to be any suggestion that you are trying to meddle in your parents' finances for your own benefit. Being up front about this stuff, as much as possible, is a great idea.

DAYANA YOCHIM:

Yeah. And ask, "Hey. Have you talked to Mom and Dad about this, yet?"Or, "Have they ever mentioned anything to do with this?" So have the conversation before you even approach them the first time.

ROBERT BROKAMP:

And they might know something, too. I find this all the time with my sisters (I have three sisters) where we're talking about our parents, or other relatives, and they know something I don't, because they had a part of one of these conversations. But we haven't all sat down and organized everything. So definitely having that conversation with your siblings, if you can, is a good idea.

And then when it comes to the horrible estate planning stuff and the will stuff, what people should be thinking about is who gets specific things (like family heirlooms and all that) because otherwise it could just go into the estate and be forced to be sold. But it's a good thing now to make sure everyone's onboard with that. That if Mom has a reason for leaving this thing to this person, she explains it. Make sure everyone's OK with it. Because otherwise, if there's arguments on it later, maybe no one will get it.

DAYANA YOCHIM:

I remember having a conversation with someone and the only thing they wanted was this cookie tin that their grandmother had, because when they went to visit grandma would always take out this cookie tin and give the kids treats. That ended up getting lost in the shuffle.

ALISON SOUTHWICK:

It probably got tossed.

DAYANA YOCHIM:

It probably did get tossed.

ALISON SOUTHWICK:

Let me get back to Patrick's letter because he also mentioned something that we felt was important. He writes, "They mentioned," (they being the parents) "a few options they're exploring (which includes annuities, covered calls, home refinancing options) that I know are being pushed on them by third parties attempting to prey on their doubts."

Annuities, covered calls, home refinancing options -- are these red flags? Yellow flags that people should keep an ear out for when talking to their parents? Are there other ones that are scarier?

ROBERT BROKAMP:

I think Patrick is right to follow his instincts on this. I would say they're definitely at least yellow flags. Any time a senior citizen or retiree is being sold insurance it should be investigated. It could be life insurance. It could be an annuity. It could be a viatical, which is when you buy someone else's life insurance policy and then you get the benefit when they pass on. There are some legitimate uses of these, but for most people you don't need them.

Home equity -- anything having to do with home equity -- you should look into. A lot of scams are regarding seniors and trying to get them to take out their home equity to either invest it in something else or pay someone a lot of money to get their home equity when it could be easily accessed through something legitimate like a bank. So if you have any questions about that, contact HUD (Housing and Urban Development). They're the folks who really keep an eye on anything related to scams, senior citizens, and home equity.

And then the other thing to consider is just anything that is high-return and low-risk. I mean that's the classic sign of a potential problem. So these days, anything that is promised to be above 3-4% and guaranteed, or no risk... something's going on there and I would definitely look into that.

ALISON SOUTHWICK:

I imagine at some point it's a good idea to call in the help of a professional, whether it's a lawyer or a financial planner. At some point it's going to be beyond you. Patrick, you don't have to have all the answers.

ROBERT BROKAMP:

Right. In terms of the financial planning, getting a fee-only financial planner is a great idea, in this case fee-only, meaning you pay by the hour. That way you're just paying someone a few hundred dollars (maybe even a thousand or two) but to give this objective evaluation of their plan so they are the people saying, "You're in good shape," or, "No, you need to work a little longer," or "No, you're spending too much." And it's not you telling your parents that.

DAYANA YOCHIM:

I think that's great advice. My advice to people is to have this conversation now. Don't put it off. Talking about it now is a lot better than digging through stacks of 40-year-old files, trying to piece together their financial picture when your parents aren't able to help. And in my case, talking to my parents and bringing it up with them actually opened this great conversation and ongoing dialogue about these very adult issues.

ALISON SOUTHWICK:

Dayana grew up. It's like the first time you had a beer with your dad and the first time you talked about, you know, 401(k)s.

DAYANA YOCHIM:

The first time my mom let me have a cup of coffee of my own, instead of just sipping off the top of hers.

ALISON SOUTHWICK:

Yeah? She let you do that? Aw!

Rick, our producer, reminded us that when you finish your "money with your honey" conversation, you get to go celebrate. So after you have this conversation with your parents, do you get to go celebrate?

DAYANA YOCHIM:

Sure. All you kids go out and talk about Mom and Dad over beers at the bar.

ALISON SOUTHWICK:

You leave the parents behind?

DAYANA YOCHIM:

Oh, absolutely. Actually, it's going to be a really telling scenario. Who picks up the check? How much fighting is there about it? Who pays? Or, "You didn't put in enough!"

ALISON SOUTHWICK:

Or how much just awkward silence. Family! Yeah!

ROBERT BROKAMP:

Love 'em. Love 'em.

ALISON SOUTHWICK:

Love your family. The show is edited by Rick Engdahl. Theme music composed and performed by our own talented Dayana Yochim. Our email is [email protected]. Don't forget to tell your friends about us and rate us on iTunes and Stitcher. For Robert and Dayana, I'm Alison Southwick. Fool on!

Get our free checklist -- Writing Your Own "Letter From Your Dead Husband" here -- to help document information and instructions to help your loved organize their financial lives for other loved ones.

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