The Realized Life — Episode 2 Transcript

00;00;04;26 – 00;00;35;03
Mark Donohue
The Realized Life, presented by Amuni Financial. Welcome back. This is episode two in a three-part series talking about family finances between the generations and what should be shared and perhaps kept private. You know, today, as we look at this from the adult children’s standpoint, the best thing you can do is to keep in touch with your parents and see your parents.

00;00;35;03 – 00;01;09;28
Mark Donohue
And I don’t say that as a parent who wants to see his grandchildren more often, which of course I do. But seeing how they live and react and the friends around them, you can get a feeling of more confidence that they’re really okay, that they’re safe as far as that goes. But if you feel your parents might be slipping, that’s the time you have the kind of conversations your mom or dad had with you when you were an adolescent.

00;01;10;00 – 00;01;41;10
Mark Donohue
You know, “Mom and Dad, can I bring up something that I’m worried about? Because, you know, I’m not interested in the estate as much. I’m interested in you and Mom being safe and secure.” And see where it goes from there. I think adult children know [instinctively] which parent to approach. Okay, because you grew up with both parents in most every case, and you know which one can convince the other.

00;01;41;10 – 00;02;04;10
Mark Donohue
“Harry, we need to talk to the boys about our finances. They’re worried about us. Okay. And they don’t need to be.” You know, things like that. So I think that’s a way in. But realize on the flip side, many times, as we discussed in the first episode, there may be a fear on your mom and dad’s part that you are, in fact, asking for a loan.

00;02;04;15 – 00;02;37;15
Mark Donohue
Okay, I know you’re not, but keep in mind that that is there, along with your parents’ fear of outliving their money. Probably one of the thorniest issues for a financial advisor is when should we suggest or ask permission to reach out to the special person if something were to happen, to try to bring up the subject of perhaps your mom and dad are starting to lose it.

00;02;37;17 – 00;03;08;11
Mark Donohue
It’s a real tough spot for financial advisors. We cannot share anything unless we’re given permission, and there have been times when I’ve said, “Would it be okay if I reach out to your daughter?” And most of the time the answer is, “Yes, please do.” In other words, the aging parents want help. Maybe they’re too proud to ask directly to their children.

00;03;08;14 – 00;03;43;21
Mark Donohue
And we have many of those children become our clients as well. That’s the line we walk. I mean, if a parent were to say, “I don’t want my kids to know anything,” then they can’t really know anything. As financial advisors, if we think they are becoming mentally impaired, that’s a whole other situation where we have to kind of shut down the account because they could be doing harm to themselves.

00;03;43;23 – 00;04;19;22
Mark Donohue
If we see that happening, again, we very sheepishly but forthrightly say, “Would it be okay if we reach out to your children?” And they know, they know it’s time. And they generally would say yes. I think when it’s an acute situation where adult children feel they know that their parents have lost it and are doing harm to themselves, much less the family legacy.

00;04;19;24 – 00;04;53;14
Mark Donohue
I’m not a lawyer. I don’t want to practice law, but I think there are things that can be done to intervene. But realize that’s the atom bomb situation. I mean, things will never be the same after that. I would certainly recommend to adult children who are really on the edge and think there’s something wrong with one or both of their parents, or something wrong with the investor, whether it be the dad or the mom.

00;04;53;17 – 00;05;22;16
Mark Donohue
You know, maybe one is not up to date with what’s going on, and the one that is, is having these problems. Definitely reach out to your sisters and brothers and present a united front. “Mom and Dad, Bill and Betty and I are very worried about you. Can I come see you?” And that’s why, you know, I said, as a grandparent, you know, I want to see my grandkids more often.

00;05;22;21 – 00;05;53;09
Mark Donohue
You, as a child of aging parents, need to see your parents. And, you know, with Zoom calls, I’m sure most of them can do a FaceTime call these days. My early generations of clients could never have handled that. But you want to really see where they are at. I think in most cases you’ll find there’s a community of people they live in, and these people look after one another, especially those that don’t have children or don’t have children that come around.

00;05;53;13 – 00;06;25;25
Mark Donohue
Ideally, what I would like adult children to do is not ask to borrow money. That’s really the best policy. But realize, if your parents had a liquid net worth of $1 million, what does that generally bring them in terms of income? At most, maybe $50,000 a year. Well, if you borrow $200,000 of it, that reduces that significantly. And so it’s all about the comfort level of your parents.

00;06;25;27 – 00;07;07;12
Mark Donohue
Maybe they’ll never need the $800,000. Maybe they’ll end up passing that along to you and your siblings. But there’s a certain number, and it seems like a million is it, that once retirees have that million dollars in their investments, they don’t want it to go below that. Okay. And again, borrowing money gets back to that fairness thing. If you, as an adult child, want to borrow money from your parents, then you should be willing to say, “Mom and Dad, in case I don’t pay this back,

00;07;07;14 – 00;07;41;10
Mark Donohue
change the beneficiary to take the $50,000 or the $100,000 you’re giving me. Reduce my share of the estate by that amount.” That shows good faith. That’s fair. And again, when your parents are gone, you don’t want the three children, four children, to not be speaking to each other because somebody got a little extra money. My dad, who has passed away, of course, was the youngest of ten, and he had a brother, Uncle Jack, who was a single man, and he had a few bucks.

00;07;41;10 – 00;08;09;10
Mark Donohue
He wasn’t wealthy, but he had a few bucks. And when he passed away, as a joke, my brother and I, who were part of like 20 cousins, jokingly told people, “Well, Uncle Jack decided to leave his money to Mike and I because he knew we would be good stewards of the money.” Of course, that’s not true. That money was left to Uncle Jack’s brothers and sisters, one of which was my father.

00;08;09;12 – 00;08;43;17
Mark Donohue
But even though they know it’s a joke, those cousins, the look on their face when we take them to dinner, when we go to Ohio to visit them. “Well, Uncle Jack is going to pay for this.” The look on their faces, it’s almost like they’re believing the joke. When it’s really true that certain beneficiaries are shorted by a sibling that borrowed money, never paid it back,

00;08;43;22 – 00;09;19;22
Mark Donohue
who may have borrowed money from his or her brothers and sisters and never paid it back, that is when that family, at the death of the last parent, is gone. They won’t talk to each other anymore. And you don’t want that as parents. You want your kids to love each other long after we are gone. In terms of the legacy and the relationship between the parents and the adult children, there was a time when long-term care insurance was readily available.

00;09;19;24 – 00;09;42;27
Mark Donohue
It is really kind of not readily available anymore, or it is exorbitantly expensive. And it’s one thing to have a conversation with one’s elderly parents, “Mom and Dad, how are you fixed?” But sometimes the kids are afraid to bring up, “Do you have long-term care insurance?” Because it sounds like, “Oh, you just want me to have that

00;09;43;03 – 00;10;16;01
Mark Donohue
so your money isn’t spent on a nursing home.” No, the child isn’t looking at that. That may be what actually happens. But I’ve had, you know, a small percentage of clients that have had long-term care stays. A portion of those had the long-term care insurance, and it made all the difference in the world. But it’s a product that’s really almost unaffordable to most investors, and those that have a lot of money just self-insure.

00;10;16;03 – 00;10;44;25
Mark Donohue
So most parents self-insure. Again, that’s kind of the hot button that neither one of them wants to talk about. Mom and Dad don’t want to think about it. The kids don’t want to ask about it. And maybe that’s the best policy. I don’t know. If your parents are starting the financial journey, really, for the first time, in terms of having a financial advisor, without sounding silly,

00;10;45;02 – 00;11;24;26
Mark Donohue
I would say it’s too late. But look at the website. Look at the regulatory websites to see the reputation of the firm and the individual that your mom and dad are dealing with. A lot of times, insurance-only providers, guess what, only sell insurance products. [Insurance] products are important, but that’s not the only thing that matters. So you want to be sure your parents, as much as you can, are not getting locked up in things that will be tied up for seven or eight years, especially as they’re just starting out.

00;11;24;28 – 00;11;52;06
Mark Donohue
And you might say, “Mom and Dad, do you need our help?” On the next episode, we’ll talk about the age-old question of, do we have all the fun we can possibly have now and not worry about the future? Or do we live like church mice? The Realized Life is brought to you by Amuni Financial.

00;11;52;08 – 00;12;13;13
Mark Donohue
Hosted by Mark Donohue, created and produced by Ashley Withers. This podcast is intended for informational and educational purposes only and is not financial, investment, tax, or legal advice. Guests’ views are their own and do not constitute an endorsement by or of Amuni Financial.

00;00;04;25 – 00;00;10;22
Mark Donohue
The Realized Life. Presented by Amuni Financial.

00;00;10;25 – 00;00;42;19
Mark Donohue
My name is Mark Donohue with Amuni Financial. And I want to welcome you to our first podcast episode, and I think you’ll find this podcast to be a little different, especially around the topic of investments. It’s not about investors being worried about the market pulling back or what the Fed’s going to do, but how they think and live about their legacy and how they relate to their family and or their beneficiaries. So we hope you like it.

00;00;42;22 – 00;00;52;04
Mark Donohue
on this episode we’re going to cover what should parents, if you will, share with their adult children regarding their investments.

00;00;52;07 – 00;01;22;07
Mark Donohue
I have been in this business for 48 years. Most people don’t realize I was the first 12 year old registered by the Securities Exchange Commission. That is the only Feb you’ll hear on these podcasts. I’m 73 years old. I have been in the business for 48 years, and I’ve had the great benefit and learning opportunity to deal with at least three generations of retirees.

00;01;22;09 – 00;02;05;07
Mark Donohue
That first generation was almost old enough to be my grandparents. And I would say, certainly for those of us born between 1940 and 1965, if we were to ask as kids, dad, how much money do you make? We would get that’s none of your business. And then if we went to our mother at another time and said, mom, how much money does dad make? She would say, what did your father say? So that generation was not about sharing personal details. Remember, they grew up in the depression, fought in World War Two, and really, it was no one’s business.

00;02;05;10 – 00;02;37;27
Mark Donohue
As time went on and another generation of retirees came along in the 80s and 90s. They were more open with their children, but still not like it is today, where you’ll literally have some investors, retired investors, probably my age, brag. I told my son that we’re worth $4 million. That’s fine. If that’s what makes you and your spouse happy. But there are pitfalls to that. And today, I think we’ll cover some of those.

00;02;38;00 – 00;02;56;08
Mark Donohue
one of the biggest reasons, clients feel a little reticent to share too much about their finances to their adult children is that dreaded word. Mom? Dad. Can I borrow some money?

00;02;56;10 – 00;03;36;03
Mark Donohue
In my 48 years of experience. There’s been a handful of times where the money was actually repaid. But that’s the rare exception. And it puts the spouses sometimes in conflict with one another. Maybe the dad says, I, I think we should lend our daughter this money. And the mom says, what about our two sons? What do we do with them? And this gets to be quite the sticky wicket. If you have one child, it’s one thing. But if you have two, three, four children,

00;03;36;05 – 00;03;55;13
Mark Donohue
if someone borrows money, a lot of times I’ll counsel our clients. Since this looks to be a permanent gift. Do you want to change the percentages on the beneficiaries, on the investments you have? At least with us.

00;03;55;16 – 00;04;43;00
Mark Donohue
Well, as far as a rule of thumb goes regarding changing the beneficiaries when you’ve had a child, in this case, borrow some money is do you think the borrowing is over? Or are you at the point where you’re going to say, that’s it, that’s all I can afford? Once you kind of know the situation has settled down at that point, and many of my clients are very much up front with all of their children, we let your brother $100,000. We are adjusting the beneficiary situation to make sure that you’re not shorted because your brother borrowed this money.

00;04;43;03 – 00;05;38;04
Mark Donohue
On rare occasion, we will hear from our clients. My daughter, is really in need of some money. Both of my sons. One is a doctor. One is a lawyer. They’re very successful. And we’ve even gone so far as to tell our sons, you know, we’re going to help out your sister. And many times, because the children, adult children are consulted. They say mom and dad, definitely. We don’t need your money. Take care of our sister because she really needs help. So communication can really make sure that when both parents are gone, the kids in settling the estate don’t end up hating each other because it looks like mom and dad were paid favorites with one of the siblings involved.

00;05;38;04 – 00;06;14;20
Mark Donohue
There is a risk to communication. If parents had all three children that could use a leg up, then you’ve got a situation that it’s a problem because you’re going to be giving out money that you really may need to live on or take care of for health purposes down the road. So it’s it’s kind of a it’s not a set rule. It’s very much about the parents knowing the adult children and making a decision based on the history, the track record.

00;06;14;20 – 00;07;09;08
Mark Donohue
Sadly, in my career, I’ve seen situations where literally a child or children, but it’s usually a child literally bankrupts the parents. The parents can’t say no. And sometimes I have to be. It’s a very delicate situation for me. But I I’ll say, Jim, you have regular banking hours? And he’ll say, what do you mean I’m not a bank? I said, that’s right, Jim, you’re not a bank. You you’ve got to say no or realize you’re risking the money that you have accumulated to take care of you and Betty. And frankly, Jim, Betty is probably going to outlive you. So you don’t want to leave her with less than she might need.

00;07;09;11 – 00;07;49;01
Mark Donohue
this is why there’s a hesitation to lend money. I think the older you get, the more catastrophically you think in terms of what could happen to you. We have had tremendous experience with clients. When there is a health situation where we fill the gap and we stretch out the legacy to hopefully preserve something for the children, but and in particular for the surviving spouse. But it’s, it’s an art, not a science. Believe me.

00;07;49;05 – 00;08;10;21
Mark Donohue
very important so that you don’t leave not only a spouse without enough money to take care of him or her, but that you plant the seeds to where your children are very unhappy with each other after you’re gone, which I’m sure is the last thing a mom and dad would want.

00;08;10;21 – 00;09;03;23
Mark Donohue
The the question really is when do you bring in children into giving them more details? Let me have one. Give you one hard and fast rule. Grandchildren should know, in my opinion, absolutely nothing about your finances, because if they do, you’re going to finance every single down payment on a first house. And if you are extremely wealthy, that can perhaps be handled. But for most people who saved money to retire and have a good retirement, a safe retirement, that’s not the situation. I would say if your children are in their 40s, certainly it would be time to open up and let them know. And many times the conversation goes like,

00;09;03;25 – 00;10;09;03
Mark Donohue
you know, son, we have a liquid net worth of I’m just gonna use a big number of $3 million. We’re living fine. We certainly intend to leave. Hopefully. You know, one third of that. You and your brother and sister. But anything can happen. And what I’ve been pleased to hear coming back from children, adult children of a certain age is mom and dad. You spend that money, you earned it. It’s yours. Whatever’s left is great, but don’t. Don’t save it for us. More and more. The current group, if you will, of children in their 40s and 50s, are saying things like that to parents when the parents open up. Okay. By that time, those those children, adult children have their first house. I mean, they’re they’re on their way. They’re in their peak earning years. But it’s like I say, it’s it’s an art, not a science. And it absolutely depends on the personalities involved.

00;10;09;03 – 00;10;40;02
Mark Donohue
I think if there’s one thing I want to really stress is that locking the door on all information to your adult children is usually not the best thing to do. In other words, let them know that you’re okay, that you won’t be asking them for a loan and try to give them as much information as you think they can handle.

00;10;40;04 – 00;11;27;27
Mark Donohue
You know, parents promise to leave this much money. Things happen. A spouse passes away and a spouse gets remarried, and. Whoa. Then, you know, now you’re dealing with multiple families. And I’ve seen families really kind of break up because the mother dies. The father remarries. So he has three children of his own with his first wife. She has four children. And so now that money is going to be split seven ways, not three ways. So I would advise clients in that situation to keep your beneficiaries and your finances separate. As far as legacy goes.

00;11;28;04 – 00;11;50;13
Mark Donohue
that’s fair. And I don’t think anybody can, can complain about that. in the case of a second marriage, if you will, a late second marriage. Maybe the new wife doesn’t want her kids to know anything. And the widow? Her husband. That’s a rematch. Reed is very open to his children.

00;11;50;16 – 00;12;23;22
Mark Donohue
So I would give both of the newlyweds the option to handle their legacy, their children, separately. It may be completely different in terms of openness, but, You don’t want to muddy the waters if you don’t have to. You know, the husband could have married a lovely woman who has four children who are going to want to borrow money left and right. that’s a problem.

00;12;23;29 – 00;12;47;04
Mark Donohue
Okay. So most of the time in that case, there’ll be a joint checking account where each spouse, new spouse puts money in. They they have their fun and they spend their money there, but they keep their assets separate. And again, the what they share to their own children would be up to them as individuals.

00;12;47;06 – 00;14;04;23
Mark Donohue
once in a while it I see my clients get mad at one of their children and want to cut them out, and I really try to walk them off that ledge because and if I have to, I say things like, this is an eternal problem you’re creating. This is all the love and affection that you built in your home is at risk. If you punish a child for being doing something stupid. And sometimes They’ll leave money, to the son and they’ll short the daughter. I mean, and they might say, well, my daughter married very well. And I say, well, that sounds great. But what if your daughter finds yourself divorced? So I try to keep it, you know, even shares, unless a loan is involved that you think will not be paid back. And then I encourage them for family harmony down the road to adjust the beneficiary percentages to reflect that.

00;14;04;26 – 00;14;20;06
Mark Donohue
should these people sit down with a counselor? And that’s always welcome. I have found over the years. The fact that they shared this with me their financial advisor, might be as far as they want to go.

00;14;20;09 – 00;14;39;16
Mark Donohue
I haven’t seen anybody say, we’re going to meet the three of my three adult children, and your mother and I want to meet and we want to work this out. That may be so volatile. Situation number one, very hard to put together because kids live different places.

00;14;39;18 – 00;15;08;10
Mark Donohue
I, I try to be and it’s not in my resume, but I try to be the wise one in preaching, calming, and tried and true methods of equality for the children and as much openness about finances as the parents feel comfortable

00;15;08;13 – 00;15;40;11
Mark Donohue
In our next episode, we’re going to talk about the same question from the adult children’s standpoint. Now, when do children of older, maybe in some cases elderly parents, when do they step forward to try to help their parents with their finances? And that is something we certainly encourage. But that’s a decision of the original investors, of course. So we’ll see you then.

00;15;40;14 – 00;15;45;02
Mark Donohue
The Realized Life is brought to you by Amuni Financial.