• Autus Team

Managing your parents' wealth takes tact, diplomacy and skill

Article by Hardi Swart, CFP®

Publication: 29 September 2019, Business Live

Very few people who experience the privilege of a long life are also able to remain in full control of their financial affairs.

Usually, an adult child has to step in, and it's a tricky business: you have to take control, keep the rest of the family happy, make all the correct decisions and - most important - allow your parents to maintain their dignity and sense of independence.

If you are in this position, here are some tips that will help.

Sow the seed

Let your parents know that you're willing to help, well before your help is actually required. This might be easier said than done: Your parents - and other members of the family - are likely to object. Persevere, because this first step is crucial.

Once your family accepts the idea that you're best suited to guide the family finances into the future, all the other steps will be easier. Suggest putting a general power of attorney in place. This will enable you to act on your parents' instruction, but not make decisions on their behalf.

The Golden File

Encourage your parents to get their fiduciary documents in order. I have clients, an elderly couple, who happily refer to this record as their Finale File. I prefer to call it a Golden File, and at the very least it should include an up-to-date last will and testament; a living will; power of attorney; a list of assets and liabilities; life policy documents; and property title deeds. It will greatly assist the executor of your parents' estate if there are also certified copies of relevant identity documents, marriage certificates and online passwords.

Many brains make good decisions

Managing your parents' wealth is a huge responsibility, but you don't have to do it alone. It's always best to involve all the relevant parties, including your parents, your siblings and other invested family members. This is where the help of a Certified Financial Planner® becomes crucial. A professional adviser will be able to untangle the web of jargon that so often accompanies financial decisions. As a neutral party, your adviser will also be able to help establish who will be the key decision-makers in the future.

Health is wealth

The primary wealth-management objective for your elderly parents is to ensure that enough money is available to maintain their health, and thus their quality of life. Medical expenses are sure to escalate, so encourage your parents to review their health cover and upgrade it if necessary.

Medical aid schemes are prohibited from discriminating against elderly people, so a plan can be upgraded at the standard rate. But be very careful when considering switching schemes: there is usually a waiting period if your parents have pre-existing conditions like heart disease or hypertension. Also be aware that some conditions will not be covered, especially if the scheme deems the procedure to be "cosmetic". This applies to many dental treatments and even dermatological work. Set aside funds for this in a low-risk investment, like money market funds.

Find the balance

Financial stability and security are paramount, but make sure your parents' portfolio is not invested too conservatively. At the very least, there has to be enough equity exposure so that growth outperforms inflation. If your parents' wealth will outlive them - in other words, when generational wealth is a consideration - it's important to consider the financial circumstances of the relevant heirs, including their place of residence. If the heirs live in another country, for example, it makes sense to allocate the appropriate part of the portfolio to offshore investments.

Home sweet home

One of the most significant decisions for your parents to make is where they will live as they get older. This can be a difficult, emotional discussion.

Each family is different. If your parents regard their home as their sanctuary and they can afford to continue living there and help maintain the property, there's no reason to move.

Alternatively, your parents might thrive in a retirement village. Besides the sense of community, there's a security benefit and round-the-clock medical assistance. Be aware of the costs: rates and levies are generally high to provide for communal services, but the highest cost can be the loss of capital if property ownership is based on life rights. When the cottage or apartment is no longer required by your parents or passed down to their heirs, only the original purchase amount, plus a percentage of the growth, will be recouped.

Best investment yet

There's a great quote by the theologian Dieter Uchtdorf: "In family relationships, 'love' is really spelt 't-i-m-e'."

This is true whether you're raising your own children or looking after your parents - the most important investment you can make has nothing to do with money. Spend time with each other, because one day it will be too late.

Hardi Swart, CFP®, is the Managing Director of Autus Private Clients and 2019/20 FPI Financial Planner of the year.

Contact Hardi Swart at hardi@autus.co.za or 086 107 7789.