Advisors should ask all new clients whether they have the potential to become members of the sandwich generation, say several personal financial specialists (PFS).

Having to care for both aging parents and adult children can have a severe impact on an individual’s or a couple’s finances, say members of the California Society of CPAs who also hold the PFS designation.

“One of the first questions we ask new clients who are in their thirties, forties or fifties, is whether they could end up supporting their parents or their adult children,” says Mitchell Freedman, founder and CEO of MFAC Financial Advisors in Westlake Village, Calif. “More often than not, the answer comes back, ‘Yes, that could happen to me.’”

“People are more prepared to deal with this now because it happens with such frequency,” says Freedman, who served on the American Institute of CPA’s Eldercare Task Force. “You want the client to have a plan set up so when something happens, they know what to do rather than just reacting to an event.”

Clients need to keep communication open among family members, says Michael Eisenberg, founder of Eisenberg Financial Advisors in Los Angeles.
The ideal is for all siblings to share the responsibility of taking care of their parents. Brothers and sisters of an adult child who must move back home can be asked to help the sibling who is temporarily in need, Eisenberg says.

Gina Chironis, a member of the American Institute of CPAs Personal Financial Planning Executive Committee, says the first advice she gives to clients is to make sure they are on solid financial ground before they help other generations.

“Then set expectations of what you are willing or not willing to do for a child who moves back home,” says Chironis. One of Chironis’ clients had a daughter move back home. The client made his daughter pay rent, and if she paid it on time, it went into an account in her name; if she paid late, he kept the money.

In some cases, clients who financially support parents or adult children may take money from retirement accounts or stop contributing to them, she says. Although taking money early from a retirement account is generally not a good idea, some kinds of early withdrawals can be made without a 10 percent tax penalty. For example, if a person loses his job, 401(k) withdrawals can be made without penalty during or after the calendar year in which the participant reaches age 55. Several kinds of early withdrawals can be made from IRAs without penalty before the account owner is 59 1/2.

It is important to know the rules, and advisors can be very helpful in educating clients about them. “An advisor who is removed from the emotions of the situation can help the client see things more clearly,” Chironis says.