Jeremy Quittner: Welcome to Teach Me How To Money. I’m your host, Jeremy. On this week’s episode we’ll be talking with Cameron Huddleston, an editor at gobankingrates.com but before we get to the interview, our jargon hack this week is power of attorney. In simplest terms, power of attorney is a legal document that authorizes one person to take over for another person in case that person is unable to perform a lot of daily decision-making functions due to old age or mental incapacity. Most often power of attorney lets someone else legally handle matters related to money and property. While a power of attorney is often used for elderly people, it can also be for younger people like members of the military who are out of the country a lot. It’s important for your long-term financial planning to think about power of attorney in the event that old age or illness affects your ability to handle these things yourself. So that’s our jargon hack for the week. Now let’s get to the interview.
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Today we’ll be speaking with Cameron Huddleston about having those important financial conversations with your parents. Huddleston is the life and money columnist for GOBankingRates. Her new book, “Mom and Dad, We Need to Talk” is out in bookstores now. It’s all about speaking to your parents about their financial lives because guess what, the way they plan or don’t can also affect you. Today we’ll find out why. Welcome, Cameron!
Cameron Huddleston: Hi, thanks for having me here.
Jeremy: It’s our pleasure! So this is such a great topic. So many of our listeners are young and it may not be on their radar yet that they have to have these kinds of financial conversations with their parents or talks with their parents about their financial situations at some point. And this is particularly important as people are living longer, having to make their retirement dollars stretch. And I also read that half of people over 85 will develop Alzheimer’s potentially or dementia. Those are all significant concerns. So let’s get started. Why is it important to talk to your parents about their money situations? Is it reversing the power dynamic in some way?
Cameron: It is a little bit, but when you go into this, you want to respect that your parents are indeed your parents and you are still the child. You have to respect that relationship. But it’s so important to have the conversation because more likely than not, you will have to get involved with your parent’s finances at one point or another. Of course, everyone dies. And so when your parents die, you’re going to have to deal with what they’ve left behind. And if they don’t have a will that’s gonna make it especially hard. But as you mentioned, people are living longer. That increases the chance that they’re going to need long-term care. And certainly you might have to step in and help out if your parents need that sort of care. If your parents haven’t prepared well for retirement, they might need support from you. So there are a lot of different reasons why you might have to get involved with your parents’ finances.
Jeremy: Just for our listeners who don’t know, what is long-term care?
Cameron: So long-term care can be in your home, it can be in an assisted living facility. It can be in a nursing home. It’s care that you need because you cannot do activities of daily living on your own bathing, eating, dressing. Oftentimes if you have dementia, this is something you’re going to need down the road.
Jeremy: So basically if you don’t have this conversation with your parents while they’re still able to, this can really impact your financial life and just your life in general in very significant ways. Partly because they’re your parents and although they took care of you while you were young, it falls to you that you’re going to be taking care of them. So can you talk a little bit more about how these dynamics change over time?
Cameron: So certainly it can fall to you to care for your parents and to help care for your parents if they have not planned. If they don’t have a way to pay for long term care if they need it or they don’t have enough money to support themselves in retirement. I know people whose parents have moved back in with them because they didn’t have enough money set aside. You know, and unfortunately, because so many baby boomers are still supporting their millennial children, they are jeopardizing their own retirement. There was a survey that found that baby boomers and Gen Xers are spending about $500 billion a year supporting their adult children. That’s twice as much as they are actually saving for their own retirement. So they think they’re doing their kids a favor, but as they get older, those kids that they were supporting, now they’re going to have to support them because they have not prepared their own finances. It can be a very difficult situation to be in when those tables are turned, and you have to tread very carefully, especially when you have these conversations. And I’m not going to say if because you have to have the conversation.
Jeremy: I imagine it’s very emotional for both sides, for all parties involved and I was wondering, do you have some tips or advice? How do you initiate these conversations? Because you know, probably no one wants to start.
Cameron: Right. I actually have a lot of tips and I just want to make it clear too that these conversations aren’t so much about talking to your parents so that you can point out what you think they might be doing wrong. That’s not at all how you want to approach this. The point of these conversations is, so you and your parents can plan. Plan for any needs that might arise as they age, and of course talking about what happens when they’re no longer around. So if you are young, if you’re a millennial and you’re just starting out, a really natural way to start the conversation is to ask your parents for advice.
Jeremy: So let’s role-play a little bit.
Cameron: Let’s role play. So you go to your parents and you say, “Hey, mom and dad, I just got married or I’m getting married soon. Does that mean I need a will?” Does that mean, I need life insurance?” And their response is going to cue you in to whether they’ve done that themselves. “Oh yes. As soon as we got married, we got life insurance, we got a will, we did this, we did that.” Or they might say, “What are you talking about? Oh, well, you know, we’ve been meaning to do that for years and we’ve never gotten around to it.” Then that opens the door to more conversations. Or, “Hey, I just started a new job. I can contribute to the retirement account there through work. Do you think I should do this?” And they might say, “Well, I have a pension. I never had to worry about it.” Or, “Boy, I wish I had saved more from a younger age.” And then again, take that and run with it.
Jeremy: You need to make a mental accounting of what their financial life looks like through this conversation should be one goal, basically?
Cameron: Yes, certainly. These conversations don’t have to happen all at once. They can happen over time because you don’t want to sit down and just grill your parents over all the details of their finances. They might not be willing to share that information or they might be uncomfortable. Especially they might be uncomfortable telling you all at once because that’s a lot to talk about. And so you can let them know you want to have these conversations, but you can do it over several meetings or several phone calls. Whatever works best for you and your family.
Jeremy: Make dinner for them, get them drunk on wine or something?
Cameron: Make dinner for them, make it comfortable for all of you.
Jeremy: Right. So if there’s a lot of resistance, if your parents are putting up resistance, what do you do? Are there ways to kind of control them into having a conversation with you?
Cameron: You certainly don’t want to give up, at least on your first try. Like you don’t want to nag them to the point where they’re going to stop answering the phone whenever you call. But if you try asking for advice, if you use a story, for example, of maybe a friend whose parent died without a will and the difficulties that caused. If you try a variety of different approaches to start the conversation. What you can do is reach out to a third party.
Jeremy: What would a third party be?
Cameron: So maybe a family friend, an aunt or uncle that your parents are close with. Maybe someone who’s already had this conversation with their kids and say, you know, “Hey, Aunt Sally, I know that you’ve talked to your kids about this. I would love it if you could tell mom how important it is to have these conversations.” Or you can reach out, if you know they have an attorney or a financial planner or an accountant, call them up and say, “I know you can’t reveal details about my parents’ finances, but I would love it if you could try to talk them in to sharing some information with me.” Or perhaps even, you know, a clergy member, someone your parents trust and respect because they can be more receptive to that suggestion from their peers and friends than from their own kids.
Jeremy: Can you give us an example of what kind of a financial plan or outline you should be setting up with your parents, what that would look like? What are some of the basics and fundamentals that everybody should have in place?
Cameron: If can only find out one thing from your parents. If they’re only willing to share one thing from you, you need to find out what estate planning documents they have. This would be a will or living trust.
Jeremy: Is a will the same as a living trust?
Cameron: They are different. Here are a couple of the biggest differences, a living trust is going to cost more to set up. What it does is, you’re creating almost like this trust where you are transferring your assets into the trust while you are still alive so that when you die, they can be transferred to your benefits directly without going through what is called the probate process.
Jeremy: So why would I do that as opposed to just set up a will? Doesn’t that accomplish the same thing?
Cameron: No. Because even if you have a will, you still have to go through the probate process and that can take time. It does cost money. In some states, it’s more expensive than others. Like in California for example, if you have a significant amount of assets, you might want to shelter them in that living trust because it’s going to save your heirs a lot of money and time going through that probate process. Where I live in Kentucky, it doesn’t make as much sense to do.
Jeremy: Why not? It is according to state law?
Cameron: Because of the state laws and it doesn’t cost much to go through probate. It’s a pretty easy process. The probate process is also a public process. So basically all your dirty laundry is going to be aired.
Jeremy: I see, so if you have a living trust you don’t go through that process.
Cameron: So if you want to basically keep it a secret, and not let the world know what you had when you died, then a living trust is another way to do that.
Jeremy: Oh, that’s really interesting. So a will or living trust, what are some other things?
Cameron: Power of attorney.
Jeremy: What’s that? Explain that to people.
Cameron: So it’s a document that lets you name someone to make financial decisions for you once you are no longer able to do so yourself.
Jeremy: And why? Why would I want that?
Cameron: Because as a parent, if something were to happen to you, say you had a stroke, say you develop dementia and you are in the hospital after your stroke and then you have to go into a nursing home for rehabilitation and there’s not another spouse or partner at home. Who’s going to pay your bills for you? You have to have someone who’s already been named your power of attorney to have access to your financial accounts. Your child can’t just go to the bank and say, “Hey, mom’s in the hospital and I need to pay her bills. Can I sign her checks?” They’re going to say, “No, not unless you are her power of attorney.” I interviewed someone for my book and his father had developed Alzheimer’s, had not named him power of attorney and he ended up in the emergency room and then a nursing home for rehabilitation. The son could not access his accounts, the bank wouldn’t talk to him because he was not the power of attorney. So he spent nine months, and $10,000 going through the court process to become his conservator. And he also had to pay his dad’s bills out of pocket until he had access to his accounts to reimburse himself.
Jeremy: So the financial repercussions from not taking care of this can be really enormous and impact you specifically.
Cameron: Oh yes, because you’re the one who’s going to have to pay for this. And then the final document is called a living will or advanced healthcare directive. That lets you spell out what sort of end of life medical care you want. Like do you want to be on life support?
Jeremy: I’m sorry, so I’m confused. We talked about a living will…
Cameron: There’s a will, and then there’s a living trust.
Jeremy: Okay, so there’s a living trust. And living will is about healthcare directive.
Cameron: In some states, it’s called a living will, in some states it’s called an advanced healthcare directive. Yes, gets a little confusing. But that lets you spell out your end of life medical care that you want. Do you want to, you know, do you want to be resuscitated? Do you want to be on life support? Do you want to have a feeding tube? If you don’t make these decisions, your loved ones are going to have to make them for you. Some people might remember Terry Schiavo, who ended up on life support for years while her family was battling out, whether to keep her on or take her off.
Jeremy: So your healthcare directive lays out how you want to be treated medically.
Cameron: Yes. And also let’s you name someone to make healthcare decisions for you.
Jeremy: Now, why would I want to do that? Why do I want to name someone to make healthcare decisions for me?
Cameron: Same reason. So if something were to happen to you. Here’s a good example, my mother, she has Alzheimer’s disease and I have power of attorney. I’m her healthcare power of attorney. And so whenever I take her, she’s had some instances where she’s had to have surgery. The first question they asked me, “are you your mother’s power of attorney? Are you her healthcare power of attorney?” If I were not, they wouldn’t be talking to me.
Jeremy: Right. So you really have to get all of these things mapped out ahead of time. Otherwise, you’re kind of inviting problems down the line. So, you mentioned that your mother has Alzheimer’s. I’m very sorry to hear that. Was that one of the reasons you were inspired to write this book? Or you had just heard it so many different times from so many different people. Can just talk a little bit about your own experiences, if you would.
Cameron: Sure. So I wrote this book because one of my biggest regrets is not talking to my mom sooner. I had moved back from Washington D.C. to my home state of Kentucky, and when I moved home I suggested that she look into long-term care insurance. She and my father had been divorced. She was living on her own, and I knew that if she needed long-term care down the road, that a long-term care insurance policy would help cover it, but she didn’t qualify because she had a pre-existing health condition. It was a benign tumor that was behind her left ear. It was not dementia at the time. And if I had been smart, I would have said to my mother then, “okay, let’s look at your finances and figure out how we would pay for long-term care if you ever need it. Let’s talk about the type of care you want.” But I didn’t, and I’ve been a financial journalist for a very long time. I was at the time, but it just wasn’t something I saw as a necessary conversation. A few years later I started noticing that she’s having trouble with her memory and then I knew I had to have the conversation then and the first thing we did was go into the attorney to update those documents.
Jeremy: Do you have an estimate of what costs are when someone develops dementia or Alzheimer’s or some other cognitive disability and they need that long-term care if you don’t have it, if you don’t have long-term care insurance, like what kinds of expenses are we looking at?
Cameron: So if you have care at home or assisted living, the average cost for that currently is about $4,500 a month. And if you end up needing nursing home care, a private room is about $80,000 to $90,000 a year. It’s incredibly expensive. Most people do not have long-term care insurance, they don’t have the funds to pay for it. So their family members are their long-term care plan.
Jeremy: I was wondering if you could help us with a listener question? This person writes in to say, what is long-term care insurance? I know you’ve been talking about that a little bit. Is it worth it? It seems expensive and there are stories about it not covering very much when you need it. Do you have any answers about that?
Cameron: So long-term care insurance is pretty much the only type of insurance that will pay for long-term care, which is the care at home by a caregiver, assisted living, nursing home.
Jeremy: To be clear, Medicare won’t cover this?
Cameron: Medicare does not cover it.
Jeremy: Will Medicaid?
Cameron: Medicaid does.
Jeremy: All right, that’s a whole other topic then.
Cameron: Yes, Medicaid’s is a whole other topic, but Medicare and traditional health insurance do not cover long-term care.
Jeremy: So they’ll say they’ll cover maybe some of this for like 30 days or something.
Cameron: If you, for example, have some sort of surgery or a stroke and you need to go into a nursing home for rehabilitation, Medicare will cover that short term.
Jeremy: Like up to 90 days or something?
Cameron: Yes that’s short-term care in a nursing home facility, a skilled nursing facility, but it’s not going to cover the type of care that my mother needs with her Alzheimer’s.
Jeremy: Which could stretch on for years or who knows how long.
Cameron: For years. The average length of long-term care people need when they do need long-term care is three years. It can be a little bit longer for women. Oftentimes because they live longer. My mother has been in assisted living for six years already. Six years is a long time.
Jeremy: And long-term care is covering that?
Cameron: No, because she couldn’t qualify and so we’re paying out of pocket. But it can be expensive. Long-term insurance can be expensive.
Jeremy: And so do you know about how much?
Cameron: Yes. I do know about how much because my husband and I recently went through the process and so around the age of 50 is a pretty good time. As long as you’re still in good health, to consider getting it because it is expensive and you don’t want to be paying that hefty premium starting at too young of an age. But if you wait too late, as you get older it’s going to be more expensive and you have an increased risk of developing health issues that will make it more expensive or make you unable to qualify. So, I’m 46 and my husband is the same age and we went through the process recently. We got some quotes for long-term care insurance for a shared policy for the two of us, it’s actually cheaper than if we were to get separate policies.
Jeremy: Why is that? Who knows? One of the mysteries of insurance.
Cameron: To be honest, I’m not even sure why it works that way, but you can get an actual shared policy where you get a certain number of years worth of coverage and if I needed say six years and we had an eight-year shared term, then he would be left with two years. If I didn’t need any then he could have the full eight years if he needed it.
Jeremy: Well, we’ve been speaking with Cameron Huddleston about the important financial conversations you should have with your parents. Cameron, thanks so much for coming on Teach Me How To Money!
Cameron: Thank you for having me on!
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