Lifestyle Money

Money: Fear of Becoming a Burden is a Recipe for Major Financial Mistakes

Courtesy of Jay Gershman, Retirement Visions LLC

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By Jay Gershman, Retirement Visions LLC, West Hartford

Not a week goes by without a client asking my advice on how to help their aging parent understand what to do with their money. This week, a particular meeting had me thinking just how often I come across people whose parents are terrified to let go and watch their money make a difference.

Most Americans in their 80s and 90s survived the Depression and therefore find it difficult to part with money that provides the financial security they have worked their whole life for. Many live in fear of needing money for healthcare or living assistance. Almost always, much of the hesitation stems from becoming a burden, which leaves so many people holding tight to the purse strings and doing little more than providing their children with checking account access for emergency purposes.

Nine times out of 10, an aging parent has one of the following reasons for not parting with their money:

  1. They are laser focused on living on income only and they think that “gifting” will lower that income. They do not realize that later in life they can use principal income and will never run out of money.
  2. They do not realize the benefit that giving assets to struggling children can make. By the time the children are at or past retirement age themselves, it is often too late.
  3. They do not realize the tax benefit they can receive and the joy they will feel from giving to charities while they are alive. Too many people leave sizable bequests but never get to see what results from their gift.
  4. They do not realize that charities offer guarantees of up to 7 percent per year for life for gifts of lump sums today.  If the grantor lives long enough, the income can nearly replace the gift and the gift itself creates a large tax deduction. The gift of an appreciated asset also avoids capital gains that would have been lost to taxes anyway.

And then, of course, there are the parents who gift assets without understanding the consequences:

  1. They do not realize that they can’t simply quit-claim their primary residence without losing the ability to pass the home to their children at death without any tax owed. Many children end up selling the house and paying a large, unexpected tax bill.
  2. They do not realize that outright gifts are irrevocable and in most cases will leave the assets exposed to divorce, creditors, and financial aid.
  3. They do not realize that gifts to children require a 60-month look-back period before the parent can qualify for Medicaid (title 19) in order to pay for nursing care.

Bottom line: We all need to educate ourselves on strategies for long term care and the ins and outs involved with gifting and creating trusts developed to protect assets from long term care expenses. Some may decide to purchase long term care insurance, others may aggressively make annual gifts. Most will, unfortunately, do nothing. Don’t be one of those people. A financial advisor and elder care attorney can help take the emotion out of these tough conversations and good advice can make it possible to live in retirement with both financial security and generosity.

Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities Service Network, LLC. Member FINRA/SIPC. Fee-based services are offered through SSN Advisory, Inc., a registered investment advisor.

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