Dorothy McCarthy, a mother of two and now a grandmother of four, can still remember vividly the day she and her husband, Duane, uncovered a box containing $70,000 in small bills under her mother’s sofa. As a child of the Great Depression, Dorothy’s mom had distrusted banks, but such a large stash of cash alarmed the McCarthys. “We felt it was too dangerous, so the next day we put it in a safety deposit box, and gave her the key,” Dorothy recalls.
It also taught the McCarthys a life lesson: the importance of talking about money with your family. As a young couple, they decided to include their children in age-appropriate conversations surrounding money, health, and estate planning. Their guiding premise has always been “Be open, and don’t hide anything.”
The McCarthys have lived a rich life, filled with family and travel, and their home showcases mementos picked up along the way. Duane and Dorothy are proud to say they earned their money and saved it together. It seemed only natural to them that they’d mutually decide how to spend it and how to distribute their assets, both during life and at death.
|1:||Start the conversation early.|
The McCarthys began talking openly about money matters when the children were young. They talked about how much the family would be spending and on what, instilling in the children the basics of budgeting. Dorothy adds, “We’ve always trusted the kids. Even in high school they each had credit cards and never abused them. They also had their own checking accounts.” By the time they entered college, she says they had already developed a fair amount of financial acumen.
|2:||Get creative about family money talks.|
Once the children were grown and had families of their own, keeping the lines of communication open wasn’t as easy. But the McCarthys got creative. Instead of receiving Christmas gifts from his kids, one year Duane asked for the gift of their time. He initiated a special gathering that became a yearly tradition, where the whole family got together and read a book out loud and then talked about it.
Ten minutes into these discussions, Duane says, they’d veer off and start talking about their jobs, children, and other things going on in their lives, including their finances. They’d talk about how much they were saving, what they were investing in, when they planned to retire, and how close they were to meeting those goals. Duane says there have been no limits on what’s discussed. And it’s had an impact beyond money. “It’s been a bonding experience that has worked out well for us,” says Duane.
|3:||Build on life lessons.|
Both Dorothy and Duane had grown up without much money. Dorothy was one of eight children, raised on a Kansas farm that had no electricity until she was 11. She was the only one in her family to go to college, borrowing the money from her sister to pay her tuition.
Their upbringing didn’t teach them much about managing money, they say. With so little of it, there wasn’t much to discuss, Duane quips. “My father earned it and my mother managed it,” he adds. “Mom went through the Depression, which left her scared, so she was very frugal. And a very good manager of money.“
Dorothy and Duane met in college and married young. They never took classes in economics or finance, and had to learn budgeting on their own. They did it step-by-step and it was a joint effort. Duane took a full-time position as a teacher. Dorothy juggled work as a teacher and a mom raising their two children.
Later, Duane took a higher-paying job in Saudi Arabia working for an oil company that wanted someone with a science background to help update their facilities. Dorothy taught in the company school. When their daughter reached ninth grade, Duane transferred to the Houston office. He worked at the company for 13 more years before retiring.
The McCarthys have always been savers and have been careful not to overspend. Over the years, they put money aside in their IRAs.
They do use their credit cards to earn frequent flyer miles, but pay off the balance every month. This year is the first time they’ve ever owned a new car. They’ve purchased several houses as investments over the years, living in them while fixing them up, and then renting them out.
|4:||Talk openly about sensitive topics.|
Over the years, the McCarthys’ family conversations about money evolved to focus on more sensitive topics, including retirement, aging, and estate planning. “Let’s face it,” says Duane, “eventually we’re going to die. Right now our daughter Kristie has access to all our accounts, and all trading authorizations.” Dorothy adds, “We offered it to Daniel, our son, too, but he said that he has four children and just doesn’t have the time so he’d prefer to let Kristie do it.”
Dorothy says they first created a will when they moved to Saudi Arabia, so there would be provisions for the children if something happened to them. For the McCarthys, it was also important to let the children know that they wouldn’t gain access to their inheritance until after age 30 when they’d be old enough to manage it wisely.
|5:||Let the family know the locations of key documents|
The McCarthys have since let their children know where their important documents and the keys to their safety deposit box are kept. The children also know the location of their parents’ cemetery plots, and estate plan, including the trusts they set up with them as beneficiaries. They have also made sure that their daughter was comfortable taking on the added responsibilities that came with account access and trading authorizations.
|6:||Plan for elder care issues now|
When asked how they approached the topic of long-term care for themselves, Duane replies, “We kind of backed into it.” Dorothy explains, “The children saw how we cared for Duane’s mother and they watched as her health and mental capacity went downhill. At one point she started banging her car into walls and was obviously having problems, so we brought her home with us for a vacation and she stayed for the next ten years until she eventually entered a nursing home. That led to a natural discussion about our preferences for end-of-life care.” (Read Viewpoints: The cost of long-term care.)
|7:||Conduct an annual review|
Of course, even the best-laid plans can become obsolete if not refreshed as circumstances change. So, the McCarthys get together to conduct an annual review with their financial representative at least annually and talk through what they can expect during the next year. Among the questions they are considering: Should they convert some of their traditional IRA to a Roth IRA? Are they still on track regarding retirement sufficiency? How much should they gift their children through the trusts they set up? Before each visit Duane develops an agenda of what they want to discuss and sends it to their representative so he can review their portfolio and provide knowledgeable feedback.
How to get the family conversation started
For those who are not as open and frank as the McCarthys, they caution: Unless you plan very carefully, you could be caught in a situation where your assets aren’t distributed according to your wishes and/or in a tax-efficient manner.
When asked how to get the family conversation started, Dorothy has a quick response: “Encourage people to bring their children to a meeting with a financial representative. That way, your children can also build a relationship with the representative and start planning for themselves.”
“You’re never too young to start,” adds Duane. “Keep in mind that as we grow older our cognitive abilities begin to diminish and it becomes far more difficult to sort things out. You really need to plan today as we don’t know what tomorrow holds.”
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917