How to ask your parents those difficult financial questions
Old age and death are still taboo subjects, but talking about financial arrangements with elderly parents now could avoid painful problems later on.
Some families are lucky with parents happy to discuss their finances and ensure all family members are up-to-date with their plans for the family silver. No need for any awkward or hard to broach conversations within the family. This makes it easy to have calm, practical discussions about the future.
But many people find it much more difficult to approach the sensitive subject of financial planning with their elderly parents. The latest NS&I (National Savings & Investment Savings) survey focused on just this issue - and revealed some alarming findings.
Almost half of those interviewed don't know where their parents' financial documents are kept. Almost a third say they have "no idea" about their parents' financial plans, and over a third don't know whether their parents have made a will or how they intend to distribute their estate.
Why is it so difficult for children and parents to have these conversations?
"Old age and death remain almost taboo subjects: parents resist facing up to the amount of care they may eventually need, or to their own mortality," says NS&I savings spokesperson Tim Mack. "Children also shy away from thoughts of losing their parents - and they don't want to appear to be eyeing up their inheritance either."
Nonetheless, such conversations doo need to be had. Firstly, if the children are in the picture regarding their parents' finances, they'll be better placed to make arrangements in the event that one or both parents eventually need long-term care.
Secondly, it's much easier for them to deal with their parents' estate in due course.
Power of Attorney
Parents can use a Power of Attorney (POA) to nominate one or more children as attorneys, to make practical decisions about their property and financial affairs once they find it hard to manage things themselves.
The need for a POA is a good starting point for discussion, as children may see their parents' health declining or increase in worry about how they'll manage in future.
"Setting up a POA is the ideal time to look at Will provisions. If Wills are in place they may well be out of date or be in need of review, so it's a good idea to make sure they cover all the things the parents want to do with their assets now," says Donald Jardine, Personal Legal Partner at Blair Cadell.
If there's no Will in place when a parent dies, their estate will be dealt with according to the rules of intestacy, which can produce unexpected, adverse and expensive results. Wills also ensure specific parental wishes are carried out, and are important for inhertinace tax (IHT) planning.
Inheritance tax planning
Since October 2007, any unused nil rate band allowance of the first parent to die can be transferred to the survivor, so a couple can own up to £650,000 of non-taxable assets before IHT liabilities kick in. As a result IHT may be less of an issue than it used to be for some families.
For the children of wealthier parents, however, there may be real concerns about how much IHT they may have to pay on their parents' estate. It makes sense for parents and children to talk to a specialist financial adviser.
They can make sure that their parents' needs are fully catered for; beyond that, though, surplus wealth can be gifted away tax-efficiently during life time.
Full-time residential care can cost between £30,000 and £50,000 a year; and parents will have to fund their own nursing home care fees if they have assets worth more than as little as £23,250.
How to have the conversation
Psychologist Phillip Hodson of counselling.co.uk says there are various strategies children can employ to broach the subject of finance with their parents - "but it's always better to do it sooner, before the parents are getting too old or confused, rather than later".
• A good relationship and regular dialogue with your parents makes it much easier to add the subject of money plans as part of wider discussions.
• Try and motivate them to make a POA and Will and consider inheritance tax planning rather than making them feel foolish for not having done anything.
• Emphasise to your parents that you're not interested in what you'll be inheriting, but simply in ensuring you do things right when the time comes to sort out their affairs.
• If you have any siblings, it can also be easier if you talk to each other beforehand and approach your parents together.
• Remember: your parents may struggle to come to terms with frailty, so any such conversation has to be sensitively and lovingly handled.