A growing trend requires extra vigilance from advisors.   

    It would seem that someone who does financial planning for a living would have an inkling of how much it costs to raise a child, but when 60-year-old Robert Jackson was faced with the reality of raising his grandson, the true cost of accepting such a daunting responsibility became clear.
Jackson, founder of Jackson Financial Services in Scottsdale, Ariz., had a rewarding two-and-a-half months when he cared for his daughter's son. But he realized it is much different to raise a child today than it was 30 years ago. For that short time, he joined the growing number of grandparents who are accepting the financial and emotional responsibility of raising a grandchild.

At a time in life when people usually assume their child-rearing days are over, an increasing number of aging Americans are finding themselves faced with raising a child. According to the U.S. Census Bureau, approximately 4 million children under 18, or 5.5%, were living in the home of their grandparents in 2004. That compares to to 2.2 million, or 3.2%, in 1970. Grandparents were responsible for grandchildren in some 2.4 million U.S. families in 2000, the most recent year for which data is available, according to the census bureau.
    Such a situation is usually brought on by some traumatic event, such as an unexpected death, or involves some unfortunate circumstance, such as drug addiction, mental illness, teenage pregnancy or economic hardship of a parent. The circumstances also frequently involve family feuding or fights over custody and support. All of which can increase the already difficult situation of planning for the grandparent's financial future and retirement and for the financial future and education of the child.   

"When you get involved in this type of situation, it is financial planning on steroids," says David W. Hayes, of David Hayes & Associates, in Mount Juliet, Tenn., who has handled the finances for two families involved in this extended family situation.

Some of the questions raised are obvious, but others come as a surprise even to financial planners. In the case of the Jackson family, his ex-wife first agreed to take in the child of their daughter, who suffers from a mental disorder. She wanted to retire to have the time to care for the infant, but soon realized that she would not have the finances necessary to raise a child. She was faced with retiring and having the necessary time, or working and having the necessary money, but she could not do both, so Jackson volunteered to be the parent.
    "I was amazed at the cost of everything, and I soon learned that this is a very challenging situation for a 60-year-old. I had less time to spend at work. It was a wonderful experience, but I realized I would be sacrificing a lot," Jackson explains.
    The Jackson saga has a happy ending. A niece in Chicago, who has two daughters and, desperately wanted a son, eagerly agreed to adopt the infant, allowing the family to stay connected, although located in different parts of the country.

Some financial advisors, including Jared Roskelley, director of planning services for Jackson Financial Advisors, have developed an expertise in helping families work through the financial issues involved when grandparents are raising grandchildren.

"When grandparents are put in that position, something catastrophic has occurred. The number one overlooked problem is the legal ramification of the situation," Roskelley says. "A common mistake is to focus on the assets involved when you should be focusing on the estate and legal issues. Frequently, the deeper you get into these situations, the more animosity is involved between the parties."
    Roskelley and Jackson are willing to take on more of a personal role with clients than some financial advisors are comfortable doing. Jackson and his family turned to counseling when deciding how to handle the situation with their grandson, and he and Roskelley are comfortable advising clients to do the same.
    "One of the big issues to consider, when counseling grandparents who are considering taking this on, is the emotional and energy drain that it is going to create," Jackson advises. "Many of our clients would have the financial wherewithal to do this, but not the emotional capacity or energy. You have to consider the age of the grandchildren and then ask your clients what kind of legacy do they want to leave the children and the grandchildren. If there are mental problems involved, or other problems, you have to address that in the estate plan."
    Roskelley adds, "Many times our role is to get families talking. We pose the question: If something happened to you, the parents, who do you want to step in and take care of the kids? Then consider the worst-case scenario. Talk about how the situation might get ugly, and plan for it. It is not uncommon for us to suggest someone seek emotional counseling."
    David Hayes is another advisor who has worked with clients who have ended up responsible for their grandchildren, and he too does not hesitate to become personally involved.
    "My wife calls me the minister of finance," says Hayes, who, in fact, is also a minister. Hayes says he does not quite reach the level of involvement pictured in some financial planning television advertisements, where the planner acts like a father or husband to the client, but he often feels his biggest job is to listen closely to a client.

"My contribution is to listen and to try to explain complex things in simple terms to real people," says Hayes, who is involved in several cases of intergenerational planning. "A financial advisor has a checklist of future things to think about. The client may be thinking that taking in a grandchild is only temporary because the parent checked into rehab and is going to resume parenting soon. But that may not happen. You have to factor the grandchildren into the long-term planning, including retirement."
    As family circumstances change, the government programs for which the grandchild is eligible also may change, and government assistance for special health care needs, for school expenses and for college tuition may be available even for wealthy families. Numerous support groups and associations also are available for assistance. Local agencies for the aged often provide assistance for grandparents raising grandchildren and the grandparents are eligible for child care tax credits, advises the Financial Planning Association. Other factors to consider before committing to taking responsibility for a grandchild include whether the retirement community where the grandparents now live, or where they intend to move in the near future, will accept children, the FPA warns.
    "Think of combining an assisted living environment and a childproof home at the same time," notes Keith Newcomb, of Full Life Financial LLC in Nashville, Tenn. "A recent study showed that of the post retirement risks that can be encountered, one out of 15 retirees will have to provide financial assistance to another family member. Most people do not plan for this and you cannot insure against it. That is why financial advisors have to be proactive rather than reactive and think about this ahead of time."
    The question of whether to adopt a grandchild or remain a guardian, or take on some other legal status, may depend upon what assistance is available. A wealthy couple adopting a grandchild may lose access to an array of assistance that would be available if only the assets of the child are considered.

"Texas has a 'permanent managing conservatorship,' which is a middle ground between guardianship and adoption, and may enable the child to receive some education and health benefits. I think other states will move toward this," Newcomb predicts.

If the child resides in one state and the grandparents live in another, further legal complications may arise, because the laws governing these situations vary from one state to the next. In a natural disaster where the parents cannot be located, such as Hurricane Katrina, it becomes a legal question whether the caregiver can make medical decisions and enroll a child in school; if the family is relocated to another state, the answers to those questions may change. At all times, financial planners advise, work with a lawyer who has expertise in these areas.

An advisor also must determine who the fiduciary is in a family situation, because there are strict legal requirements for carrying outfiduciary duties, including investing settlements and trust funds for minor children. "Family members should put everything in writing. If the financial planner is the fiduciary, it should be spelled out in writing exactly what everyone expects," Newcomb advises. "You need to map out the 'what ifs' of various scenarios. If you have older clients, you need to ask them what kind of planning their adult children have done. Have the children considered what would happen if they were incapacitated? The planner should offer to meet with the children and talk about it."

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