Another issue: Who is to be declared guardian if something happens to the parents? “That should be set out in a will,” says Hayden. “It is much more complicated if a guardian has to be declared through the courts.”
Sometimes, advisors must tell clients that they cannot spend as much as they want on their grandchildren, says David Demming, of Demming Financial Services Corp. in Aurora, Ohio.
“I am an easy touch if the grandparents have the money, but if they do not, an advisor has to be willing to tell them the numbers are not going to work,” says Demming. “I have had clients who have given up a new car or a vacation or sold a second house because they were not going to say no to the grandchildren.”
Taking on the burden of caring for grandchildren can create stress for grandparents, both financially and emotionally, notes Chris Hobart, CEO and founder of Hobart Financial Group in Charlotte, N.C.
“There has been an uptick in grandparents taking care of their grandchildren in the last five years,” he says. “Clients come in and ask how they can do it financially. It obviously puts a burden on their savings and on their retirement money. Some of that money used to be for spoiling the grandkids; now it's for supporting them.”
These situations are often created when an adult child loses a job, is underemployed or gets divorced, goes back to work and moves back in with mom and dad with their own children in tow.
“When that happens, the advisor has to have a conversation with the client about the lifestyle they can live and still help take care of the grandchildren,” Hobart says.
Grandparents have to update their estate plan when an adult child moves back home, says Robert Russell, president of Russell & Company in Cincinnati, Ohio. They also have to decide if they are going to formally adopt the grandchild if the parents are out of the picture.
Because grandparents are older than typical parents, they have to determine who will take care of the grandchildren if something happens to them, Russell says.
“One of my clients raised six of her grandchildren. She set up fixed and hybrid annuities. She also used a diverse investment approach with REITs and other investments,” Russell says. “A financial advisor needs to know his client very well in order to craft a solution in these situations.”