By Alan G. Orlowsky, J.D., C.P.A. and David Lansky, PhD.
Baby Boomer Joe McGill (not his real name) loved his parents, and when they died, Joe and his sister grieved. The fact that his parents left their estate in a chaotic mess didn´t diminish Joe´s affection for them, but it did cost him and his sister hundreds of thousands of dollars in estate tax and legal fees, plus many hours of administrative hassles. Since their mother´s will was confusing, Joe and his sister feuded when deciding which of them would keep their mother´s collection of fine sculptures, because Joe wanted to keep it intact rather than divide it.
The taxes and fees were paid by the estate, to be sure. But if the older McGills had planned their estates wisely, their children – not the IRS and the lawyers – would have inherited that money.
Estate planning not only preserves wealth for succeeding generations, but it also gives the aging parents satisfaction and peace of mind. If they really think about it, most parents would rather leave behind a grand legacy than a costly mess – not to mention help their children and grandchildren achieve their dreams and goals.
We´ll explain what a good estate plan consists of, and then suggest strategies for raising the subject of estate planning with your parents if they normally avoid talking about their financial situation with you.
Each of your parents (in fact, every parent and person with substantial assets) should have a solid estate plan. At the very least, such a plan includes a will, durable power of attorney for property, and power of attorney for health care. Affluent parents should also use revocable trusts to keep trust assets out of probate – which in Illinois can take months or years.
Depending on the value of the estate, the nature of the assets, and the family relationships, a plan might also include a life insurance policy and irrevocable life insurance trust, or a generation-skipping gift trust, for example. Irrevocable trusts help protect assets from estate tax.
An estate plan may also involve life insurance to provide estate liquidity if a substantial portion of the estate comprises illiquid business interests or real estate.
Each parent should appoint a competent and reliable executor (in the will), trustee (for a trust), and agents (for powers of attorney), and update those designations over the years if any of those people die or become disabled.
Finally, if either parent´s estate is worth more than $2 million in 2005 ($4 million for a married couple), they should give annual tax-free gifts of up to $15,000 to each of their children and to as many others as they wish.
In many families, especially in your parents´ generation, talking about your personal finances is taboo. Some parents don´t feel comfortable telling their adult children how much money they have and what´s going to happen to their wealth when they die. In some families, if adult children ask their aging parents about their assets, wills, trusts, beneficiaries, or heirs, the parents might suspect their children of having purely selfish motives. If the children raise the subject of powers of attorney, the parents might wonder if their kids are trying to take control of their property. And they might feel a little wary suspicious if you advise them to give you and your spouse and your children $12,000 each, this year and every year.
Before you raise these issues with your parents, discuss them with your siblings, so you present a unified, concerted message. Then you can either approach your parents as a team or approach them alone, acting as the quarterback of the team with their consent.
Here is the best way to raise the subjects of money, death, and taxes with parents who don´t normally discuss those topics with you. First – maybe over the course of several visits – ask them questions about their lives, their ancestors, and your family history. Ask them how they hope to live out the rest of their lives, their dreams, and goals, their worries and concerns, how they would like to be remembered, what they would like their grandchildren to know about them, and what family values they want you to preserve.
These questions, and the discussions that follow – if you are sincerely interested in the answers – will not only give you and your children a sense of continuity and heritage, they will also build trust and open up an avenue for talking about sensitive issues like money, estate planning, their health and welfare, and other personal concerns that your parents were previously reluctant to reveal.
If you still have trouble getting through to them, you might suggest that they talk to their legal and financial advisers about their future – including their financial security, estate plan, long-term health care, and future residential options.
If that suggestion fails, you may have no other alternative than to contact your parents´ legal and financial advisers yourself and explain to them that you are concerned about your parents´ well-being and, frankly, your own. There´s no shame in wanting to help your parents protect their estates from the ravages of taxes or the greedy fingers of unscrupulous advisers and peddlers of fraudulent investments.
There is also no shame in wishing to preserve your parents´ wealth for the sake of your children and future generations.
Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for over 30 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business.
Al is a contributing author of the book 21st Century Wealth (Esperti Peterson Institute, Denver, 2000), and has written numerous articles on the subject of estate planning. Contact Alan Orlowsky by email or call 847-325-5559.
David Lansky, Ph.D., is a clinical psychologist who has been working with families and organizations for over a decade. His involvement with business-owning families and families in transition focuses on team building, conflict management, leadership development, and executive coaching. David is a certified family therapy supervisor and is a partner in the consulting firm of Family Business Innovations in Deerfield, Illinois. He has taught and supervised family therapists at the Adler School of Professional Psychology and at the Family Institute of Northwestern University.
Updated January 2020