The Great Wealth Transfer is Creating a New Generation of Family CFOs

For many families, the Great Wealth Transfer starts long before an inheritance. Many adult children are becoming their aging parents' go-to financial decision-makers.

The shift from adult child to the family's Chief Financial Officer (CFO) can happen suddenly after discovering unpaid bills, a suspicious bank wire request or an aging parent falling prey to a scammer. Or the job can be created out of necessity after realizing mom and dad's financial life has grown too complex to manage on their own, says Tyler Rosser, managing director at Oxford Financial Group.

Longer life expectancies, coupled with the staggering $124 trillion in wealth set to change hands through 2048, according to Cerulli Associates, are making the family CFO an increasingly common job description. "It's becoming much more prevalent," says Rosser.

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Serving as the de facto family CFO means taking on a broad range of money-related responsibilities, such as overseeing estate planning and long-term care. It's time-consuming and, depending on your parents' situation, difficult, so make sure you take care of yourself throughout your "term" as CFO.

Here are six steps to acting as a family CFO.

1: Start with a conversation

The best plan of action is to sit down with your aging parents while they are still capable of making financial decisions — and before a crisis strikes, such as the onset of dementia — and explain why you'd like to play a larger role in managing their finances and be privy to their estate planning.

"It starts with a conversation with the older parents and getting their buy-in," says Rosser.

"Millions of families [are] going through generational transitions," says Timothy Habbershon, managing director and founder of the Fidelity Center for Family Engagement. Unfortunately, many families have not had these important sit-downs. A Morning Consult survey, commissioned by Kiplinger as part of the Trillion Dollar Talk campaign, found that roughly two in five families have never discussed the plans for passing on money and assets.

"As people get older — especially past 70 — they often become less willing to talk about things like estate planning," Habbershon said. It's a unique opportunity, he says, to "create confidence, closeness and peace of mind for years to come."

2. Collect relevant financial information with an "audit"

To perform CFO duties properly, the adult child in charge must have access to all pertinent financial information for both parents, including the following items.

• Account access: Savings, investment, and retirement account numbers and passwords, as well as combinations or keys to safes and safety-deposit boxes.
• Cash flow: Monthly bill statements and recurring expenses.
• Legal documents: Real estate records, wills, and trusts.
• Insurance: Life, health, and long-term care policies.

"When your parents are aging, the most important thing adult children (acting as CFO) need to do is gather key financial information," says Noah Doyle, CEO of SoundRidge Private Wealth.

Gathering these documents gives the family CFO a fuller picture of their parents' finances. By laying everything out on the table while the parents are still alive and mentally competent, the family CFO also has a better chance at preventing in-fighting between adult siblings who have a stake in their aging parents' estate, adds Doyle.

Ideally, the family CFO will have full transparency into his or her parents' financial life. At a minimum, the CFO should get the parents to grant access to their account statements, preferably via a "duplicate statement" arrangement or "view-only access."

"It gives the family CFO insight into transactions that are coming in and out of a checking account or what withdrawals are coming out of an investment account," says Rosser. "They can log into a Fidelity or Schwab account, for example, and see account data in real time."

A parent can also authorize his financial institution or financial adviser to add the adult child and family CFO as a "trusted contact," which allows the adviser to contact the family CFO if he suspects financial exploitation, fraud, cognitive decline, or can't reach the client. They can do the same for their Social Security accounts.

"The last thing you want is your parent to be susceptible to some sort of elder fraud," says Doyle. "So, anytime a wire goes out, or a transaction looks suspicious or fishy, you know it's time to step in."

A key piece of information that must be clarified, adds Doyle, is whether aging parents have a long-term care policy in place. Often, elderly parents do have a policy but don't share that key information with their adult children.

If a long-term care policy does exist, it's important to evaluate it closely.

"You need to know what the policy number is and understand what the benefits are because if there's ever a time when your parents have to use this policy, it's the children who are going to actually file the claim and know what the care options are," says Doyle.

If there's no long-term care policy in place, the CFO must analyze the parents' assets to determine whether they have enough to cover long-term care and, if so, the most tax-efficient ways to raise the cash to pay for care, says Doyle.

3. Secure power of attorney

In many cases, it's prudent for the family CFO to have the aging parent or parents grant them power of attorney (POA), a legal authorization that lets the child manage the parents' financial affairs. "A power of attorney can encompass everything from paying their mortgage to making sure they have enough liquid resources to satisfy their day-to-day living expenses," says Rosser.

Peggy Sizow, chief fiduciary officer at National Advisors Trust, says a power of attorney can be customized however a family wants. If the family CFO is most suited for financial matters, a financial power of attorney can be set up; if another family member is more comfortable with health care issues, a healthcare power of attorney can be set up in their name, says Sizow.

The financial power of attorney can enable the family CFO to take control over all a parent’s finances, or it can specify certain types of financial accounts, such as bank accounts, brokerage accounts or retirement accounts. "They can be as customizable as you like," says Sizow.

Having full visibility into a parent's financial accounts is also a way to protect them from cybercriminals and other fraudsters and scammers, and in some cases protecting them from themselves, says Rosser.

"It protects them from bad actors," says Rosser. An elderly person may also inadvertently cause financial harm to themselves by continuing to give to charities they have supported their entire life but can no longer afford. A review of checking accounts by the CFO can spot those types of self-inflicted wounds.

"The family CFO can step in and say, 'Mom, you've done such a good job gifting to charity in your life, but you really need to preserve most of those assets for the rest of your life," says Rosser.

4. Build a team of trusted advisers

The family CFO likely won't be an expert in money management, estate planning, or tax planning. So, it's prudent for the adult child managing a parent's finances to connect with and build a relationship with experts when needed, adds Rosser.

"Bringing in a broader advisory group is a really good strategy," says Rosser. "Lean on the professionals around you."

Aging parents may be more willing to listen to a suggestion by the family CFO if it is backed up by the parents' long-time financial adviser or CPA.

"Everyone is sort of singing the same tune," says Rosser. "You get more buy-in that way."

An effective family CFO gathers key financial information from trusted experts and makes a sound financial decision.

"The family CFO's job is to get the information and options from the parents' long-term accountant, long-term estate attorney, long-term financial adviser," says Doyle. "And once they've gotten all the information from the professionals, then they make the best decision that’s best for their family."

5. Create or manage the estate plan

Finalize and verify your parents' estate plan well before mom or dad gets sick or incapacitated, says Sizow. "There are quite a few things that could take place prior to an inheritance," says Sizow.

Creating a trust and titling assets as "payable on death," for example, can help assets pass more easily to heirs and avoid costly, time-intensive probate court, Sizow advises.

It's important that you know the key components of the estate plan, including the names and contact information of the professionals your parents worked with on it, as well as how to access estate documents. Kiplinger's Trillion Dollar Talk survey found that a third of adult children whose parents have estate documents don't know how to access those documents.

6. Act when necessary

Hopefully you will not need to step in on your parents' behalf for years to come. Still, it makes sense to monitor their accounts and keep an eye on their health, especially if they show signs of physical or mental decline.

Read More on Managing an Estate

• How to Talk to Your Family About Estate Planning (Without the Drama)
• Being the Executor of an Estate Is a Thankless Job: Here's How to Do It Well Anyway
• How to Organize Your Financial Paperwork for Your Heirs
• 12 Common Estate Planning Mistakes