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Let's Talk Money: Questions to Ask Your Parents About Their Finances

Let's Talk Money: Questions to Ask Your Parents About Their Finances

May 07, 2024

For whatever reason, money is often considered a taboo subject that many find difficult to discuss, even among family members. It might feel intrusive to ask questions about your parent's financial situation, and a study conducted by Empower found that 63% of people don’t talk about money with their family1.

Still, as their child and beneficiary, it's imperative to be proactive about understanding your parents' financial situation, especially when planning for the future. Whether you're preparing to inherit wealth or want to ensure your parents' financial security, asking the right questions can provide clarity and peace of mind for everyone involved.

As an advisor, I encourage my clients to talk to their kids and beneficiaries about their plans (when appropriate). I can help facilitate the discussion to answer questions and provide guidance if desired. Whether you plan to ask your parents or meet with their advisor, here are some key questions you should ask to ensure you have a full picture of your parents' current and future plans.

  1. What is the overall financial picture?

Understanding the big picture can help you grasp your parents' financial health. Ask about assets, debts, investments, retirement accounts, and insurance policies. While some parents may not want to go into specific details, knowing their goals and what’s important to them can be helpful. You may also gain insight into how they anticipate their financial situation may change once they retire or as they age.

Simply put, it's good to understand what success looks like to them, where they stand in achieving some of their financial goals, and how that may impact them—and possibly, you.

  1. What is the current estate plan?

Inquire about wills, trusts, and beneficiaries listed on their various accounts. Knowing these details can help you understand how assets will be distributed in the event of your parents' passing. The last thing anyone wants to do while grieving is to have more questions than answers, so ironing out these details can help a bit down the road.

  1. Are there any debts or liabilities?

Knowing about any outstanding debts can prevent surprises down the road. Ask about mortgages, loans, credit card debt, or other liabilities that could impact their financial situation. Again, these are all things that would be a part of the estate that would be passed down to you should something happen, so it will be essential to have a general idea of where things stand.

  1. What are the sources of income during retirement?

Most people's retirement income comes from a mix of sources. Understanding where their retirement income will come from, such as pensions, Social Security, or investments, can help you gauge their financial stability during retirement. You can also check with your parents to see if they know how long they can live off their retirement savings and if they'll potentially need funds to bridge any gaps.

  1. How are investments allocated?

Learn about your parents' investments and how they are diversified. Understanding their investment strategy can provide insight into their risk tolerance and potential returns. Investment strategies vary widely, so you’ll want a general understanding of this aspect of your parents’ financial picture.

  1. Which insurance policies are in place?

As many people age, health needs change, and expanded care may become necessary. While these changes will affect daily life, they can also be expensive if not planned for in advance. Ask your parents about life insurance, health insurance, long-term care insurance, and any other policies they may have. Understanding their coverage can help you identify gaps and plan for unexpected events.

  1. Are there any long-term care plans in place?

I want to dive more into the topic of long-term care because it can be a significant expense for many families. Ask about plans for potential long-term care needs, including insurance coverage or savings set aside for this purpose. It also can't hurt to start to understand the estimated cost of long-term care in your area or the area where your parents may desire to reside if they ever need assisted living (AARP has a helpful tool here). Costs can vary greatly depending on the facility, location, and the level of care required, so it’s important to seek this information to better prepare.

  1. Who is their trusted financial advisor or planner?

A big part of my role as an advisor is advising my clients and trying to build a relationship with their beneficiaries so I can assist and answer questions. Whether or not you plan to use the same advisor for your finances, knowing who your parents use and having their contact information can be invaluable in times of need or transition.

  1. What steps can you take to be prepared?

Finally, ask what you can do to be better prepared as a beneficiary or executor of their estate. Understanding your role and responsibilities can ease the transition during difficult times. You may want your parents to designate yourself or your siblings as Power of Attorney, and you can even divide those between someone who's in charge of making health or other related decisions versus someone who feels more comfortable with financial decisions should your parents not be able to make these on their own.

Open conversations with your parents about finances can provide clarity and confidence in their financial future. That’s why I offer all my clients the opportunity to do an overview of their plans with their children or other beneficiaries. Don't hesitate to ask these questions and any others that come to mind to ensure you clearly understand their financial situation and plans. It's never too early to start planning.

As always, we’re your neighborhood resource for money matters. Feel free to contact us to discuss this important topic.

1Nasdaq.com, 2023