Managing Your Ailing Parents’ Portfolio

Team HF

Happyness Factory is a Goal Based Planning platform. We aim to spread financial literacy and help people make sound financial decisions.

18 Jun, 2018

Having ailing parents at home not only drains you emotionally but also puts a huge strain on your finances. What could be more unsettling, though, is to learn that they have numerous assets and bank accounts which you have no idea about.

Take the case of Ashish Sharma who had to seek help from a financial advisor to set right his ailing parents’ finances. They had huge savings, but their portfolio was in disarray.

According to Sharma, more than Rs 1 crore was lying idle in savings bank accounts, FDs of Rs 2 crore were on auto renewal mode and no one had a clue about the interest they earned, and they held stocks worth Rs 2 crore which were inherited from Sharma’s grandfather and were not touched for the past 25 years. They received a pension of Rs 60,000 per month but spent just Rs 15,000. This meant they were saving Rs 45,000 per month which was again accumulating in the savings account.

The portfolio had to be rejigged so that their investments would help them meet their increasing medical needs and at the same time safeguard their wealth.

This is how Sharma’s parent’s portfolio was tweaked –

• The amount in the savings account and the fixed deposits was invested in a mix of debt funds and tax-free bonds. Besides better returns, this would result in substantial tax savings.
• The under performing stocks were weeded out and the amount from the sale was reinvested in some good mutual funds.
• Typically, senior citizens of over 70 are advised an asset allocation of 85:15 or 90:10 towards debt. In this case, however, the current asset allocation was retained, meaning debt investments were reinvested in better-performing debt instruments that gave better post-tax returns and the equity investments were changed from high-risk stocks to good quality equity funds.

It is important to remember that you must avoid ad hoc investments and always invest your money towards your financial goals. While good financial planning and investing towards your goals helps you feel secure and happy, in times of emergencies it will help you quickly modify your approach to suit your needs. This approach of goal-based financial planning is something the Sharma’s realised a little late in life but now vouch for.

Here are a few learnings that you can take home from this family:

1. Ailing parents will need your time to sort out their finances

2. Take some time checking if all investments are in joint names, if nominees are in place and a Will has been prepared.

3. Find out all financial accounts and documents

• From an early age, encourage your parents to assemble a file that details the location of their bank accounts, assets, debts, investments, fixed deposits, lockers, demat accounts and broking accounts. Even if they don’t want to tell you how much money they’ve got, ask them to at least share where you can find this information in an emergency
• In the case of ailing parents whose finances you are not aware of, you can get a fair understanding of their bank details and investments by looking at their bank statements or approaching their Chartered Accountant or Financial Advisor who may have such details
• Get details of their insurance policies, investigate the status of each policy and confirm any required ongoing premiums

4. Streamline investments and bank accounts

Ease your financial responsibilities by doing the following –

• Consolidate multiple bank accounts and Fixed Deposits
• Automate monthly payments such as ECS payments for electricity, gas, mobile phones and shift them to the accounts where pension or some monthly inflow gets credited
• Discontinue unnecessary subscriptions or payments that renew automatically

5. Plan for expenses and payments your parents may not be able to make

• Evaluate expenses or payments that you may have to make for your parents and create a plan for paying the bills
• Clear outstanding dues or debts yourself or with your parent’s money at the earliest to avoid mounting interest and penalties
• To avoid unnecessary family disputes or finger-pointing keep a record of every expense and payment you have made on behalf of your parents

6. Obtain a Power of Attorney (PoA)

It is essential to get a PoA for the ailing parent in the other parents’ name or in yours so that you can act on behalf of the parent.

A PoA can be helpful to –

• Operate bank and demat accounts on behalf of parents
• Transfer shares in the name of other family members or to check for unclaimed dividends
• To make investments with your parent’s money
• To deal with any financial institution for any purpose that involves your parent’s money

7. Hire a qualified Financial Advisor if your parents do not have one already

A parent with an illness that requires long term care is a situation that may occur without warning. If prior financial planning of an aged parent’s money has not been done you may be completely lost or commit expensive financial mistakes. Even if you feel you are good with finances, do not guess what to do with your parents’ money. Consulting a qualified Financial Advisor can help you understand the various aspects of handling a parents’ money and ensure their hard-earned money is not lost or forgotten about. A Financial Advisor will also help chart an investment plan that will not only cover the needs of your parents but also the ultimate beneficiaries.