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Financial planning for older parents is a family affair

Dealing with finances and your folks wasn't easy when you were 12 years old and asking for a bigger allowance.

Guess what? As the years have passed, it's gotten harder.

Many baby boomers, already struggling to keep their own children and lives on track, now are grappling with a whole new set of responsibilities, including helping an aging mom and dad deal with money.

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Planning too often postponed
For many middle-aged children, the issue of parental care -- financial and otherwise -- comes as a surprise.

Financial advisers regularly find that most adult children do not talk with their parents about planning for the parents' retirement years. By the time a child does have to step in, they often do not know what to do or where to turn.

And that could be costly -- for everyone.

That's why it's imperative parents and their grown kids confront the difficult issues of money -- how much a parent has to live on, what might be left to heirs, how to pay for medical care -- before an emergency arises.

Three, sometimes competing, considerations
There are three critical issues that families need to evaluate when it comes to looking at parental financial needs, according to Charles DiVencenzo, vice president and director of advanced product marketing with Hartford Life in Simsbury, Conn.

The first is the parents' retirement income situation. Do they have enough to live comfortably?

Second is the capacity for wealth transfer. What do they want to leave and what is the most efficient way to do that?

Finally, there is the ever-present power issue. How much control over finances does a parent need or is willing to relinquish?

"Sometimes they compete with each other," DiVencenzo says. "The more income you want now, the less there will be to transfer. People have to figure out what they need from these three variables."

This simple evaluation process is the beginning of estate planning. And it's something that every family, not just the wealthy, needs to think about.

Basic estate planning
The advantage of a well-thought-out estate plan is that it allows the estate owner, regardless of income or assets, to control his or her legacy. If you don't do it, the government -- federal and often state, too -- will make the decisions about your property.

Financial planning experts recommend that everyone should have the following in place:

  • A will that outlines final wishes;
  • A health-care power of attorney so that your representative can make medical decisions for you if you are unable to do so;
  • A living will, if it meets your religious beliefs, that goes a step further and prohibits extraordinary medical procedures in treating irreversible illness; and
  • A financial power of attorney, also called a durable power of attorney, that allows your designee to handle your financial affairs if you're incapacitated.

A will is critical because it details exactly how you want your assets dispersed. Without one, the probate court process will allow the state to distribute your property, meaning that assets might not end up where you had envisioned. Someone you wanted to inherit property might not, while others could get more than you think they deserve.

Next: A living trust can help you avoid probate...
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