financial plan

The Biggest Risk to a Senior’s Financial Plan, Your Kids | Part Two

Last week’s podcast looked at how an elderly person’s financial plan can be sabotaged by adult children. They may be unfamiliar with their parents’ finances, have no reason to trust the parents’ financial planner, and with the best of intentions they may dismantle a well-established plan.

What are some things you can do to prevent this?

1. Appoint only one person as financial power of attorney. The emotional component of this decision, a fear of favoring one child over others, can lead to appointing all the kids as co-agents. It is a much better idea to name just one—someone who understands money, understands investments, and understands your financial situation. You may also want to consider appointing someone who is not related to you.

2. Be sure the person holding your power of attorney knows that they hold that power. Oftentimes parents do not communicate this to their children. There can be all sorts of emotional reasons for this, such as fear of showing favoritism or reluctance to talk about money.

3. Then begin to involve that person in your meetings with your financial planner, long before you anticipate that their services would be needed. This gives them a chance to form a relationship with the planner and understand the philosophy behind tax decisions, estate planning decisions, and investment decisions. Then when they need to step in and make those financial decisions, they are not overwhelmed.

4. What if you don’t have children, don’t have a child that is knowledgeable about finances, or don’t have any child that you really trust? Consider appointing a knowledgeable friend or a professional as your power of attorney. Some trustees or advocacy firms will serve as a power of attorney, so there are resources you can look to outside of children. One advantage to appointing a competent agent who is not a beneficiary is that they have no conflict of interest. Because, sadly, there are times when a beneficiary’s priority is not the wellbeing of the parent but maximizing what they will receive from the estate.

5. You can consider including in your power of attorney a direction that your preference is for them to continue using your financial planner. I would be cautious about mandating this, because if there is a good reason to switch firms, you do want the authorized agent to be able to make that decision.

To look briefly at the flip side of this, what if you are the adult child of elderly parents? How can you help protect them and yourself? First, have a discussion with your parents. Ask them whether you are the power of attorney, the executor, or the successor trustee. If so, ask to be involved and educated in their finances and the planning process. Initiating these conversations is hard; it may feel like intruding into your parents’ private business. But if you have been named as a power of attorney, executor, or successor trustee, it is your business to know this. It is beneficial to your parents for you to take that responsibility seriously.

Second, begin your involvement with an open mind. Be willing to learn. Be willing to get to know the advisor. Be curious, ask lots of questions, and give yourself plenty of time to fully explore and comprehend the planner’s process and the history they have with your parents. Remember this is someone that your parents have trusted, possibly for decades. Give them a chance to show you why they earned your parents’ trust.

Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.

Sign up for our weekly blog for more useful information.

Scroll to Top