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A recent column in Conde Nast’s Portfolio.com addressed the concept of “negative inheritance.” Economists use this term to describe the situation where any gifts or bequests that children otherwise might receive from their aging parents are outstripped by the costs to the children for caring for their parents. Negative inheritances can destroy a child’s retirement and financial plans. For example, if a child had planned to withdraw a small percentage from his or her portfolio each year to support the child’s lifestyle, but now must increase that percentage by fifty percent to take care of aging parents, then the child’s financial plan won’t work. As a result, financial advisors have developed detailed strategies for dealing with these risks. These strategies include family dialogue, long-term care insurance, and active management of the parents’ assets.
The most critical element in avoiding negative inheritances is proactive family discussion. The family dynamics may be difficult, but if the family does not discuss possible scenarios in advance, then the caregiving inevitably falls to one child. This can cause tension and resentment and can damage the family. If the children to whom this responsibility will fall are reluctant to bring up the subject with their siblings, then they may want to start by discussing what will happen when the parents can no longer drive.
Financial advisers and elder law attorneys often ask their clients for permission to talk with their aging parents to review the status of their assets, and to determine what plans the parents may have in place for their long-term care. The financial advisor can then run a series of projections to see if the parents’ assets will be sufficient for their care. If the funds will not be sufficient, then purchasing long-term care insurance might be an answer, even if the children pay the premiums. Purchasing a policy that covers half the cost of in-home, assisted living, or nursing home care is better than having no insurance at all.
If the parents cannot qualify for long-term care insurance because of their age or medical conditions, then it is essential to actively manage the parents’ assets. This may include dealing with the family home; often people are house-rich and cash-poor. Obviously, selling the family home in order to provide funds for care, or to diversify assets can be stressful for all concerned. Sometimes, however, it can be the inevitable option.
Studies show that middle-aged caregivers can suffer emotionally and vocationally, as well as financially. Some baby boomers will work at paying jobs in retirement so they can care for their parents. The caregiving workload can increase from an average of five hours per week to forty hours per week when the parent suffers from Alzheimer’s disease or severe dementia. The caregiver has less time to spend with peers and operates on much less sleep. This emotional toll does not appear on a balance sheet, but it is real.
The attorneys at Oast & Hook can assist clients and their families with their estate, long-term care, financial and insurance planning.
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