The coronavirus pandemic poses risks and concerns for the oldest Americans. It also has put strains on the youngest, leaving the generations in the middle facing the increasing pressure of having to take care of both.
If your client is a member of the “sandwich generation,” they’re not alone. Nearly half of adults in their 40s and 50s are caring for a parent who is 65 or older while also raising or supporting children. The stress of serving as a caregiver to multiple generations can weigh heavily on emotional and financial well-being, even without the additional complications that come with COVID-19, such as caring for school-age children who are learning from home, much less planning for anyone’s future on the other side of the pandemic.
To navigate this phase of life, one of the most important steps is to make sure your client has a comprehensive financial plan in place for all the generations in their life. By having a plan and revising it as life develops, they can put their responsibilities into their proper perspective.
Get Organized
The first step for your client is getting a good handle on their own overall financial picture. Advise them to create a net worth statement of all their assets and liabilities and track their income and expenses to understand how much they’re spending, how much they’re saving and how much they need.
- Separate expenses for parents and adult children. If they’re covering expenses for their parents and adult children, separate them out. This will help them understand the level of support they’re giving them so they can balance their own needs against those of their parents and children going forward.
- Reset emergency fund. Having more people in your life means more chances for emergencies. Boosting emergency savings gives a client peace of mind and helps them plan for the unexpected—whether that means replacing the roof on their home, funding an extra year of college or hiring a home health aide to care for their parents.
- Don’t neglect opportunities. The old trope of the individual too busy taking care of others to take care of themselves can apply financially too. Financial opportunities take many forms. Refinancing or paying down high-interest debt can free up cash to help your client meet their goals. Make sure they’re contributing to their retirement accounts. They should be tax smart with their charitable giving and engage with their investments, particularly with any concentrated holdings or stock awards they may have received through work.
Plan for the Needs of Children
Several savings vehicles are available for clients to support their children. For larger estates, a thoughtful giving plan is typically the centerpiece of an estate tax strategy. Trusts and other structures can provide the tax and financial benefits of gifting while addressing practical concerns like how soon a child can access the funds and what the funds can specifically be used for.
- If a client has young children. The client should earmark funds for their education and take steps to open and fund college savings accounts. Funds can grow tax-free in a 529 college savings plan account. In addition, they can front-load five years of annual exclusions to a 529 plan. This enables a couple to give $150,000 in a single year ($30,000 combined annual exclusion times five) to a child’s 529 plan account. The account can grow tax-free until they withdraw qualified education expenses, which can include up to $10,000 for K-12 education.
- If a client has older children. The client should crunch the numbers to estimate the full cost of college, including tuition, living expenses, supplies and unexpected costs. Then help them evaluate the range of options to meet those costs. This should include financial aid, 529 plan accounts and other funds earmarked for education, direct payments to be made by them or other family members (which don’t count against the $15,000 annual exclusion), and amounts they may want or expect them to contribute themselves.
Understand Parents’ Financial Lives
It can help clients to think of caring for their parents as another one of their financial goals—like saving for retirement or funding a college education for their children—rather than a personal or financial burden.
- Take inventory of parents’ financial lives. Parents often don’t want to burden their children with their financial challenges. It’s also important to respect their privacy and independence. But the sooner your client gets a general handle on their income, expenses, assets and liabilities, the better. An introduction to their accountant and any other professionals they work with will help ensure your client is kept well informed. They don’t necessarily need to know all the details and values, but if your client’s parent suffers memory loss or an illness that prevents them from handling their day-to-day affairs, they may not be able to locate important financial documents and the information they share with your client may be limited.
- Investigate health benefits. Advise clients to identify the supplemental insurance coverage and social programs their parents rely on. The tax rules, insurance benefits and regulations surrounding elder care, including home care and assisted living facilities, are complex and extensive. As an advisor, you can explain how they work, guide them through the process, ease their stress and help ensure they’re making the right decisions for their loved ones.
- Know who has power of attorney. Advise clients to make sure everyone is on the same page and documents are in place for handling their parents’ health care decisions and financial matters in the event of incapacity. Have them coordinate with siblings and other family members who often can take on specific tasks, even if they live out of state. For example, while your client might pay bills, other family members might research benefits, check on their parents by phone or visit in person occasionally to give your client a well-deserved break.
Have a Contingency Plan
Make sure your clients have a plan to fill the gap if they’re no longer able to do everything they are doing today. Estate plans typically address the needs of children, but they often don’t address the critical care and support your client may be providing for their parents.
If your client’s parents are living with them, you should make sure their estate plan accounts for their needs if your client passes away before them and their house must be sold. If they’re providing financial support for their parents, trusts can be used to replicate that support while also fulfilling the goals of their estate plan after their deaths.
