Let’s Talk about…….Baby Boomers: Do your parents have an Estate Plan?
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 hundred 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 antique sculptures. Joe wanted to keep it intact rather than divide and his sister only wanted certain pieces.
The taxes and fees were paid by the estate, to be sure. The problem was the if 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,it also gives the aging parents satisfaction and peace of mine. 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.
Let’s talk about what a good estate plan consist 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.
What’s in a good estate plan?
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 a power of attorney for health care. Affluent parents should use revocable trusts to keep trust assets our of probate – which in IL can take months or years to resolve.
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 generating skipping gift trust, for example. Irrevocable trusts which we have talked about in this blog, help protect assets from estate tax.
If your parents have trusts, each year they should transfer new probate assets to their trusts. Probable assets include, cash, stocks and bonds, limited partnership shares, valuables and collectibles.
A Estate Plan should also involve life insurance to provide estate liquidity, if a substantial portion of the estate comprises liquid business interests or real estate.
Each Parent should appoint a competent and reliable executor (in the will), trustee (for a trusts) and agents (for powers of attorney). Those designations will need to be reviewed and modified if any of those people become disabled, or deceased.
Raising the Subject
In many families, especially in your parents generation, talking about your personal finances can be very difficult. 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. They also might feel a little wary or 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 when you do speak about this you present a unified, concerted message. Then you can either approach them as a team, or approach them alone, acting as the quarterback with their consent.
The best way to raise the subject of money, death and taxes with your parents who don’t normally discuss those topics with you is to 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 would they like their grandchildren to remember about them and what family values would they like you to preserve.
If you are sincerer and truly interested in the answers, you will provide your parents with a sense of continuity and heritage. This will also build trust and open up an avenue for talking about sensitive issues like money, estate planning, their health and welfare and any other personal concerns that your parents were previously reluctant to reveal.
If all fails, you might suggest they talk to their legal and financials advisers about their future – including their financial security, estate plan, long-term health care and future residential options.
There is no shame in wishing to preserve your parents wealth for the sake of your children and future generations.
If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559.