Elder care

Caring for an Aging Parent

Caring for aging parents can be a difficult planning aspect to balance. If you are among the “Sandwich Generation,” you may be trying to support your aging parents as well as your own children. Today, individuals are living longer than before, so it is better to be prepared.

Having the conversation

The first step—and often the most challenging one—is to find out what your parent needs or expects from you. It’s always best to have this conversation before a crisis occurs. Also, keep in mind that your parent may resist discussing the topic at first. He or she has lived a long time without much assistance from you, and the transition to accepting your new role in his or her life may be bumpy. Understanding and respecting your parent’s wishes will go a long way toward smoothing the process. It is also important to understand the difficult conversations for a number of reasons. How will your parent deal with incapacity, the fear of becoming dependent, or the reluctance to burden you with his or her needs?

Gathering information and documents

Create a list of emergency contact numbers, including your parent’s medical providers; religious leader; neighbors; friends; and financial, tax, and legal advisors. You should also gather copies of legal documents, funeral plans, medical records, and medication information. Keep a list of investment, bank, and insurance accounts, in addition to the locations of safe deposit boxes, real estate deeds, and automobile titles. You may find it helpful to upload all of this information to a USB flash drive so that it’s readily available when you need it.

Evaluating your parent’s situation

It may be difficult for you to evaluate your parent’s mental and physical capabilities or to locate community services to support his or her independence. If that’s the case, a geriatric care manager can be indispensable, particularly if you live some distance from your parent. He or she can perform an in-home assessment, determine your parent’s housing needs, and recommend a plan of action. Your parent’s doctor should be able to refer you to a qualified geriatric care manager.

Can your parent remain at home? Just because your parent can no longer care for his or her home doesn’t mean that he or she has to move. In fact, staying in one’s home may offer better support and social networks than moving in with one’s children. If your parent can stay safely alone, you may want to divide up the household chores among family members or hire someone to provide housekeeping, cooking, and personal care. Here are a few other items to consider:

 Find out if Meals on Wheels is available in your area. The organization’s volunteers deliver meals to seniors who can no longer cook for themselves.

  • Look into modifying your parent’s home to help with any physical limitations.
  • Install a security system to summon emergency personnel if necessary.
  • Call the local police department to find out if it offers a program to check on elderly residents. If not, churches often have a volunteer group dedicated to checking in on older parishioners.
  • Post important telephone numbers for contacting you, emergency services, and your parent’s doctor in a prominent location.

As your parent grows older, an assisted living facility or retirement community may be a better solution than living at home. Such residences provide additional benefits, such as transportation, access to medical personnel, and a richer social life.

Another solution is moving mom or dad into your home. This is a big decision, and it may not be the best choice for every family. Ask yourself:

  • Will living together put stress on your relationship with your parent or on your relationship with your family?
  • Can you afford to remodel your home to provide a comfortable and private environment for your parent?
  • Do you have the flexibility to provide transportation as needed?
  • Will other family members step in to help, both financially and physically?
  • Will other family members share the cost of adult day care?

Can your parent continue to drive? If your parent is over age 75, takes medications, or both, his or her ability to drive a car may be impaired. Of course, it’s difficult to know when parents have become a danger to themselves or others. Give your parent’s friends and neighbors your contact information and ask them to make you aware of any changes in his or her driving skills. Or suggest that your parent accompany you for grocery shopping and other errands rather than driving alone. Many communities offer driver’s education courses that teach best practices for seniors (e.g., limiting drive time to daylight hours and good weather conditions, avoiding highway or high-traffic situations).

Keep in mind that this may be a very sensitive topic for your parent. Many seniors view driving as essential to their independence and will resist giving up the car keys. For help approaching the conversation, see AARP’s family discussion guide on senior driving: www.aarp.org/home-garden/transportation/we_need_to_talk.

Financial and legal issues

As we age, we lose mental alertness. Due dates for bills pass, insurance policies lapse, and poor financial decisions may be made. Your elderly parent will likely need your assistance with his or her financial, legal, and medical matters.

Banking. Most banks offer automatic bill-payment services from checking or savings accounts—a convenient option if your parent is Internet savvy. Or your parent can give you responsibility for his or her finances by having bills and financial statements sent to your address. You might also consider a bill-pay service, which receives a copy of invoices and then requests your parent’s bank or financial institution to send checks directly to payees.

Investments and insurance. If day-to-day management of your parent’s finances is too much for you to handle, talk to your financial advisor. He or she can recommend products that provide income on a regular basis, such as managed retirement income portfolios, annuities, or bonds. Your financial advisor can also propose cash-management solutions, which allow your parent’s monthly social security, retirement plan, and annuity payments to be deposited automatically into an account. You can typically access these funds through a debit card, unlimited checkwriting capabilities, and online bill-pay services—everything that a bank checking account offers.

Also review your parent’s existing life and long-term care insurance coverage and make changes if necessary.

Legal concerns. An elder law attorney can help you prepare documents to manage your parent’s health care and financial affairs. In fact, many states provide free legal services to the elderly. Your parent may wish to seek an attorney’s help in the following areas:

  • Appointing a health care representative. Without legal authorization from your parent, medical privacy laws prevent doctors from discussing his or her medical conditions with you. In addition to appointing a health care power of attorney, your parent may want to consider a living will, which provides instructions on how to manage treatment if he or she has a terminal or irreversible condition and cannot communicate.
  • Understanding the process for qualifying for government programs like Medicaid or veterans benefits. Don’t rely on the experiences of family or friends, as their situations may differ from your parent’s.
  • Reviewing and updating estate planning documents, including his or her will, durable power of attorney, and any revocable trusts. Besides the basic estate planning documents, your parent may wish to draft a letter outlining who will receive personal effects like jewelry and family heirlooms.

What about taking care of you?

Although caring for an elderly parent can feel overwhelming at times, you are not alone. Many local and national groups are available to support you in providing the care and services your parent will need. To get started, visit the U.S. Administration on Aging’s Eldercare Locator at www.eldercare.gov, or call 800.677.1116.

At your workplace, talk with a member of the human resources staff to find out if you’re eligible for unpaid leave under the Family and Medical Leave Act. Also ask about the availability of an employee assistance program (EAP). EAPs are intended to help employees deal with personal problems—including concerns about aging parents—that might adversely impact their work performance, health, and well-being.

Finally, seek the help of a financial planner. Besides reviewing whether your parent’s resources are sufficient to pay for care, he or she can help you determine how to balance your own goals with your parent’s needs.

Additional online resources

For further information on caring for an aging parent, you may find these online resources helpful:

 This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 Matthew Lang is a financial advisor located at 236 N Washington St, Monument, CO 80132. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 719-481-0887 or at matt@langinvestmentservices.com.

© 2018 Commonwealth Financial Network®

 

Division of assets

Dividing Retirement Assets at Divorce

For many couples, retirement assets represent a significant portion of net worth. During a divorce, in order to split assets equitably, most couples divide the benefits available in their employer retirement plans and the money they invested in their individual retirement accounts.

Court-ordered division of assets

The rules for splitting accounts are unique to each type of retirement account, but one rule is uniform: To avoid current taxation, the division of the retirement accounts must be done as a result of a court-ordered property division, divorce, or separation agreement.

  • Qualified domestic relations order (QDRO): Before a traditional pension, 401(k), 403(b), or 457(b) plan can be divided, a document called a QDRO is needed. A QDRO is a court order that tells the retirement plan administrator how to divide the retirement assets. In the QDRO, the employee is referred to as the participant spouse, and the recipient of the assets is called the alternate payee. In lieu of a QDRO, some employers prefer to provide their own standardized form for court approval.
  • Transfer of account incident to a divorce: IRAs, including traditional, Roth, SIMPLE, and SEP accounts, can also be divided by a court order. The term for dividing an IRA or nonqualified annuity between the IRA owner and the former spouse is a transfer of account incident to a divorce. Note that without the specific direction of a court-approved settlement, a transfer of part of an IRA to a spouse or former spouse will trigger taxes. The IRA owner, not the former spouse, is responsible for the taxes and any penalties due.

Separating the benefits

Retirement plans. As noted above, prior to making any changes to a participant spouse’s plan benefits, employers require a QDRO document, signed by a judge. Before the QDRO is written and issued, it is a best practice to talk with your or your former spouse’s retirement plan administrator about plan requirements. Once the QDRO is written, it takes a court order to make corrections or changes.

Depending on individual plan rules, benefits may separate immediately (the separate interest approach) or at the participant spouse’s earliest retirement eligibility (the shared payment approach).

  • With the separate interest approach, the alternate payee’s benefits are assigned immediately but may not be accessible until a later date.
  • With the shared payment approach, benefits for the alternate payee are available only when they become available to the participant spouse.

IRAs. Practices and requirements among IRA custodians differ. The key to a successful transfer is to have a settlement agreement that clearly specifies the accounts to be transferred. Under Internal Revenue Code Section 408(d)(6), this transfer is intended to be tax-free.

There are two basic ways to split up an IRA. The most common method of transfer is to segregate the assets into a new IRA for the former spouse. Alternatively, a check can be cut to the recipient spouse, who has 60 days to open his or her own IRA to avoid taxes.

Additional important details regarding QDROs

Employer plans can be categorized as defined contribution, like the popular 401(k) plans, and defined benefit, commonly called pensions. A defined contribution plan has readily ascertainable account balances. These are usually split shortly after a divorce has been finalized.

A defined benefit is typically paid as a monthly benefit at retirement. With the separate interest model, the former spouse is treated as an employee, and benefits are paid until his or her death. With a shared interest model, benefits usually stop at the participant spouse’s death, even if the former spouse is still alive.

A former spouse qualifies for a survivor annuity only if the QDRO clearly provides it and the retirement plan can accommodate it. If the plan cannot provide survivor benefits to a former spouse, or if the former spouse’s claim ends at the participant spouse’s remarriage, the former spouse may consider life insurance as an alternative means of income.

If the QDRO specifies payout instructions not offered by the retirement plan, it cannot be honored; however, the QDRO can require early retirement benefits for the alternate payee even if the participant spouse chooses to delay retirement.

Unlike an alimony award, retirement plan property settlements are not generally severed when a former spouse remarries.

Tax issues

QDROs. Which party is responsible for taxes? It depends on whether a separate account has been set up for the former spouse or whether monies are paid out of the participant spouse’s benefits. With separate accounts, each party is responsible for his or her own taxes. With shared benefits, all taxes are paid by the participant spouse.

Note that a QDRO-ordered distribution to a child or other dependent is always taxed to the participant spouse.

One of the advantages of a QDRO is that the 10-percent penalty does not apply for early withdrawals from a 401(k), 403(b), or 457(b) plan made to a former spouse who is younger than 59½; however, the mandatory 20-percent withholding tax does. To avoid the tax on monies intended for IRA rollover, elect a direct transfer to the new IRA custodian.

Divided IRAs. Remember that an informal or mediated agreement between spouses to divide individual IRA assets is not recognized by the IRS and will result in taxes. Also, unlike with QDROs, a divorce does not qualify as an exception to the 10-percent early withdrawal penalty for IRA distributions prior to age 59½.

Special situations

The former spouses of military members may receive up to 50 percent of the military member’s retirement pay if the couple was married for at least 10 years. Because the military uses the shared benefit model, benefits to the former spouse begin only after the military member elects retirement. Benefits continue until the retiree’s life expectancy, unless the retiree elects a survivor benefit plan. The survivor benefit can be lost if the former spouse remarries before age 55.

 State, local, and municipal retirement systems offer fewer options for dividing marital assets. The retirement plans of some states do not allow the assignment of benefits, even to a former spouse.

Other types of government retirement benefits are the Federal Employees Retirement System (FERS) and the Civil Service Retirement System programs for federal retirees. The correct term for the division of assets of federal retirees is not QDRO but Court Order Acceptable for Processing. FERS also uses the shared benefit model, so a rollover to an IRA is unavailable.

Social security is available to former spouses who were married for more than 10 years. The rules for receiving benefits as a former spouse are the same as for current spouses. For example, if a former spouse reaches full retirement age, he or she will receive the higher of his or her own work-related benefit or 50 percent of the worker’s full retirement benefit. At the worker’s death, the former spouse can receive up to 100 percent of the decedent’s social security benefit, reduced for the former spouse’s early retirement. These benefits are available even if the worker remarries or if the former spouse remarries after he or she turns 60. Payments to former spouses do not reduce the worker’s or the current spouse’s benefits.

Nonqualified annuities can be divided between divorcing spouses without triggering taxes, based on the instructions of the court-approved settlement document. Because each insurance company has its unique requirements, it is wise to communicate with the carrier before the final divorce decree. You may find that existing surrender charges will be applied.

Many executives also participate in nonqualified deferred compensation plans. Because a nonqualified plan is not subject to ERISA rules, a QDRO is not used to set aside benefits for the former spouse. A division of the assets of the nonqualified deferred compensation plan will not shift the tax liability to the former spouse.

Stock options also pose challenges in property division. The date chosen for determining asset value is crucial. Value can differ widely, depending upon whether it is based on the date of the initial separation, the date on which the divorce was finalized, or the date of option vesting.

Consult a professional

Because valuing and dividing a couple’s assets is complex, consider bringing in a third-party professional such as your financial planner or a Certified Divorce Financial Analyst (CDFA). Experienced with valuing retirement plans and employee benefits, a CDFA professional can act as an advisor to your attorney or as a mediator for you and your former spouse to help in pursuing an equitable settlement.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 Matthew Lang is a financial advisor located at 236 N Washington St, Monument, CO 80132. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 719-481-0887 or at matt@langinvestmentservices.com.