Some baby boomers rely on getting money from one or more parents or in-laws, either for daily living or for inheritance. Many parents give it gladly, but not always. Sometimes the boomers just ask for it, or even demand it.
The whole process poses some sticky questions for financial advisors. When setting up the financial plan, how best to advise the boomer about relying on parental largesse? Should the advisor say anything about the situation at all? If yes, how can this be done without stepping into a minefield?
If the boomer seems to be shaking down or pressuring the parents for money just to maintain a lifestyle, Jay Ghosh says he would not even accept the boomer as a client.
“Fortunately, my practice is in an affluent area in rural Florida, and my boomer clients are professionals in the upper income range,” says Ghosh, who is principal of JMG Financial Service, Fort Walton Beach, Fla. The boomers may tell him they expect to get an inheritance, he says, but they don’t come in talking about how they can hit up their parents for money now if things don’t go right.
Leaning on parents “is rarer than one would expect,” agrees Roy Goldberg, a planner at SIL Financial in Richmond, Va. Still, he says, it does happen, and it occurs with people at all income levels.
The situation often surfaces during the fact-finding interview, he says. For instance, he may learn that parent-to-boomer gifting has been occurring on a fairly regular basis. Often, the boomer tends to be someone who is not especially self-disciplined when it comes to finances, he says. “Some can’t hold onto a dime or even balance a checkbook.”
The money exchanges do not necessarily reflect malice or desire to harm the parent, Goldberg stresses.
Rather, much of it is what he calls a “habit of taking” and “a habit of giving.” That is, “the parents are constantly giving to their children, so the children get in the habit of receiving.”
The solution: Goldberg always starts with a budget. He asks the client to develop 2 budgets–one that takes parental gifts into account, and one that does not.
Merely asking this, he says, often helps segue into another aspect of parent-to-boomer money flow: the expected inheritance. Specifically, the boomer may tell Goldberg that he or she expects to get a fair amount of inheritance. If that happens, Goldberg says he asks if the boomer wants him to put the expected amount onto the balance sheet as a receivable.
“That scares them,” he says.
“It makes them think about it, the reality that their parents are mortal. Often the wives will say, ‘We can’t think like that. We can’t think about getting money from dead people.’”
Moments like that enable Goldberg to broach the whole idea of self-discipline, specifically, becoming aware of spending and financial constraints.
Advisors need to be very diplomatic in these discussions, cautions Nancy Eberhardt, a co-owner, with her husband Dick, of LLQ consulting, a North Ft. Myers, Fla., estate planning firm.
“For instance, if the boomer seems to be depending upon money regularly provided by parents, ask something like this: ‘Is this arrangement something that will continue?’” Don’t ask, “How come you’re doing that?”
That opens the door to discussing whether and how to include the money in the financial plan. The advisor may suspect the boomer is actually leaning on the parents for money, she allows. However, “it is very hard for the advisor to put that thought directly to the boomer.”
Besides, says Eberhardt, most boomers come in for help with protecting money they already have or getting insurance that will help them leave more behind for heirs. The source of current money is not the issue.
Goldberg says he will open up the subject if he thinks it will help with the boomer’s planning. For instance, if he learns gifting is going on, he says he may ask the boomers how they use those gifts. “Some say they put the money into savings or an IRA. Others say they spent half and saved half. Some say they used it for their own children.” Whatever the answer, he says, the conversation often gets the boomers to thinking about what they are actually doing with their money.