Review their investments, see that appropriate asset allocation is maintained, consolidate bank accounts, streamline tax matters and insist that they make a will.
A recent study by life insurance company, Metlife, shows that approximately 10 million adults - over the age of 50 - are providing for their ageing parents. This is quite a precarious situation as these individuals are helping their parents at a time when they need to plan for themselves. The study also reveals that in developed countries, the percentage of children (aged over 50) providing financial assistance has more than tripled in 15 years.
In such cases, it helps to help your parents or elderly dependant organise their finances. This will not only give them peace of mind, involvement and knowledge of parents’ money will also help you. And give you time to focus on your own post-retirement planning, as that is also very important.
However, your parents may not be comfortable discussing money matters with you. And it may not always be easy for you to make them talk about the same. You may be required to walk the extra mile to ensure they discuss the same. Here’s how -
The first step: Most of our parents would have coaxed us to open our first Public Provident Fund (PPF) account or making our first investment. Take a leaf out of their books. The best way to start is to discuss your finances and planning with parents and take their opinion. This will make them feel involved and in the process they will find it easy to open up to you. In turn, it will become easy for you to learn about their finances, problems and offer your assistance.
The motive, here, is to understand their situation to help them take better decisions. It may sound good to make it clear that your help would be purely on a need basis. And sorting their money matters would help them also eventually.
Conduct a financial check: It is very crucial to conduct a quick financial health check / review for parents. The income stream for those above 70-75 years will mostly be their investments till date. A review will help knowing what instruments have parents invested in and how much has the investment summed up to. What are their liabilities (if any), banking relations and expenditure patterns, tax status and various other matters that have a bearing on their financial health. You could help them chalk a plan of action detailing the areas that require attention and prioritise the same, accordingly.
Also consolidate their investments in shares, mutual funds and fixed deposits. Particular attention should be paid to make sure that their asset allocation strategies are appropriate and there are adequate resources to help them support their lifestyle. If there are investments that are near maturity, you could check if they want to re-invest the same or redeem it. See to it that most of their investments are in debt instruments. Any leakages could play a spoilsport on your finances, not only in terms of assets but also on the income earning potential.
Insurance - health and life: Those above 70-75, may not really require life insurance. But, if they have an ongoing cover, let it continue.
Medical costs is a priority area for parents. Check if they have any health cover, in case they do, what all does it offer. If not, you could see if it is possible to take a plan for them or include them in a family floater plan.
Pay special attention towards the coverage amount and the list of exclusions. Beside this, it would be advisable to work towards setting up a healthcare fund, in view of the limits on reimbursements under health covers. More importantly, the exclusions or the pre-existing diseases that are not covered under the policies should be provided for through this extra fund. This will also be handy as most general insurance companies do not allow those above 65 to buy health covers.
Here, adequate attention should be paid to providing for their dependency corpus while calculating their required life insurance cover. This strategy would at least help the parents in maintaining their financial stability, in case of any unfortunate event.
Banking and related issues: Consolidation should be key when it comes to parents’ financial affairs. They should be helped to do away with unnecessary bank accounts. Parents mostly have one account with almost all public and scheduled banks. However, over time they do not use all accounts. It would be helpful to review all the accounts and activity, accordingly closing down idle accounts and shifting the balance to some active account.
Ensuring cross nominations (in favour of each spouse) in all bank accounts, investments, demat accounts, deposits, and so on helps.
Stress on will making: Having a valid will is of utmost importance. This should be accorded equal priority as other financial matters. If required, hire trusted legal experts to help your parents make a will, specially as many elderly these days insist on keeping a will confidential.
In case your parents already have a will in place, you could help them review the same and modify to ensure that the same reflects their current wishes. Special care should be taken to ensure that their will takes precedence over nominations in a lot of matters, as per recent judicial rulings and the same should be conveyed to them. Wherever applicable, suitable power of attorneys may be kept available, especially for property and related matters.
Taxation: This continues to haunt taxpayers across different ages. At their age, parents may not be in a position to be updated with the latest tax laws and therefore, help them optimise their tax outgo. Many a time, parents find it tough to obtain professional help for these purposes, as their accountants might have also retired by then. In such cases, children could help them with the right professionals.
The writer is a certified financial planner
