- Paying themselves first by saving for major life events, inevitable bumps in the road, and their future
- Donating to charities to which they were committed
- Always living within their means
Their careful planning provided private school education for their four children, a nice home, and fabulous family vacations.
When the unexpected happens
Shortly after successfully launching their children into adulthood, my dad was diagnosed with pancreatic cancer and passed away seven months later. Dad was only 57 years old. Despite careful planning, he would never enjoy retirement.
Mom had been a homemaker. However, with careful planning she was able to maintain her lifestyle and go on many of the trips that she and dad had dreamed of. Then life threw mom another curve ball, Hurricane Katrina. Mom’s home, like most of the homes in and around New Orleans, had to be gutted and rebuilt.
Initially, my siblings and I thought that the magnitude of the situation had temporarily rendered our mother unable to make decisions and manage her daily financial obligations. Despite resettling into her house, mom’s confusion became progressively worse. Three years post-Katrina, she was diagnosed with vascular dementia. Coupled with other health problems, mom was no longer able to live alone. She lived in assisted living for eight years before she passed away.
Financial realities of investments
I learned many things during that eight-year journey with mom. As an accountant, I became the de-facto person to handle her financial and business matters. In my role as Power of Attorney, it was important for me to have a plan to financially provide for her. We were fortunate that mom had some assets, and I quickly learned that the stocks she owned had a distinct advantage over the mutual funds: dividend income. That dividend income covered many of mom’s expenses and we did not have to touch the actual principal asset. On the other hand, when we needed funds from a mutual fund, we had to cash out the mutual fund which depleted the asset.
Managing mom’s assets in the best way possible allowed me to accomplish another dream of my parents: to pass something onto their children. I realized that had my mother been invested predominantly in mutual funds most of her estate would have been depleted and there would have been little left for her heirs.
Avoiding tension between family and money
Which brings me to another point. Family tensions often seem to peak where an inheritance is concerned. If you find yourself managing your parent’s finances, I recommend that you handle the responsibility as an accountant treats a client:
- Keep good records
- Communicate, if you can, with other family members
- Use an independent CPA to prepare tax returns
- Prepare a Balance Sheet and an Income and Expense Statement for your parent(s) that is updated on a regular basis
- Share the financial reports with your parent’s Estate Attorney and/or CPA and if appropriate your siblings on a regular basis
Managing in this way will minimize disputes both during your parent’s lifetime and after your parents pass away. It will allow interested parties to offer suggestions, ask questions, and express concerns that can be addressed during the process rather than after the fact.
Then, when your role as Power of Attorney transitions to Executor of your parent’s estate, the transition will be smoother thanks to managing as outlined above. Settling your parent’s estate will be much easier.
We’ve all heard sad stories of family disputes occurring after a parent’s death. With respect for your parents and proper planning, combined with communication and reporting, you can have a better outcome.
Achieve your goals, from early retirement to selling a business
Everyone’s situation is different; what it takes for you to be financially independent is unique to you. If you’d like to discuss any questions or concerns you have your financial life, please contact us for a no obligation consultation to see how we can help.
Steps the Nearly-Retired Should Take Now
If you’re within five years of retirement, now is the time to take a few steps to ensure your retirement goes smoothly. Why? Because retiring is like landing a big airliner; you can’t do it on a dime. This is why 747s line up 20-30 miles from the airport, maneuvering from one direction to another to ensure they’re in the right location. Preparing for retirement is similar: you have to start thinking about the detailed tactical aspects before you retire; otherwise, you risk a crash landing.