Estate planning discussions are seldom had between loved ones. And understandably so - asking your spouse or parents to discuss their own mortality isn't exactly a conversation many of us have over dinner. However, as the baby boomer generation ages, many adult children will find themselves in a desperate position scrambling to work back on decades of their parents' financial life to find documents, make arrangements, authorize and pay for care, and so on. Balancing your own grief, work, and family life with these sudden and life-changing responsibilities can also have lasting effects, even causing irreparable damage between siblings and grieving families. Although not all of this can be avoided, there are a number of steps adult children can - and should - take to ensure they are informed about their aging parents' wishes and some basic provisions of their estate plan.
3 things adults need to know about their aging parents' estate plan
1. Where are their estate planning documents located?
It is likely that your parents have some sort of estate plan in place, such as a will or trust, but what good is it if no one knows where it is or who the attorney was that prepared the documents? It is common for one spouse to take on the primary financial responsibilities in the household. Unfortunately, details regarding family finances, accounts, and estate planning documents aren't always communicated. As you're asking these questions, make sure both of your parents are present so they are on the same page also.
If you're hesitant to bring up the topic, try and remember, the purpose of asking these questions is not to inquire about a future inheritance. In fact, you're not even asking to read the documents. You just need to know where they are and how to access them in case you need to.
2. Who has been named the executor of your parents' estate?
As part of the estate planning process, your parents will name an executor to their estate, who will be responsible for carrying out their wishes as set forth in their will. Often, parents will name a family member (usually an adult child) as the executor of their estate. This can be problematic for a number of reasons. First, it is a lot of work to be the executor of an estate and sadly, a really thankless job. All of the planning arrangements and financial responsibilities of the estate fall on the executor, who may already be dealing with challenges in their own life.
Also, depending on family dynamics, it can create a rift between siblings and other family members, as inheritance information is revealed. Even if the executor is only carrying out the wishes of their parents, it is not uncommon for disagreements about a perceived inequity to arise. When possible, it may be best to suggest naming an independent third party executor instead. In any case, since the executor is going to be in charge of the estate, it is very important to know who that individual is - especially if it's you.
3. What happens if your parents become incapacitated?
Another key part of end-of-life planning is what happens when someone becomes incapacitated and cannot participate in their medical care or manage their financial affairs. This can happen from an illness or coma for example, and may be temporary or permanent. A healthcare proxy and power of attorney (POA) can be completed during the estate planning process to help facilitate ongoing medical and financial arrangements on your behalf.
Adult children should ask where these documents are, and they should also know who has been named. It can be very difficult to get these documents in place after someone is already incapacitated, leaving family members potentially on the hook for sudden expenses and regular bills to pile up. Further, without a healthcare proxy, doctors may be unable to speak with you about your parents' condition and you may not have any legal standing to advise about your mom or dad's specific wishes, assuming you knew what their wishes might be.
Helping your parents get organized
Whether your parents are traveling and enjoying their retirement or just beginning to slow down, they may appreciate a helping hand in getting their finances organized. Many aging parents are concerned about being a burden on their loved ones at any point, and hesitate to ask for help even when they need it. By offering to lend a hand, you may be able to help alleviate your parents of some of these concerns while you help ensure their wishes are carried out when the time comes.
Here's a simple checklist to help you and your parents take some of the guesswork out of estate planning:
- Where are the wills located? Are there any instructions you need to access the documents?
- Who is the executor of the estate? What is their contact information?
- What is the name of the attorney or law office that prepared the estate planning documents?
- Ask for copies of the healthcare proxy and power of attorney documents
- Have your parents set up a trust? If so, is it funded? (Failing to properly title assets in the name of the trust means the assets will bypass the trust and possibly enter probate, which is likely what your parents hoped to avoid by setting up the trust in the first place)
- Ask your parents to make a list of their financial accounts (you don't need to know amounts if that is a concern) including account number, financial institution, and log in information. Go through it with them, and confirm that their beneficiary designations are still current
- Review account registrations, particularly for bank and individual investment accounts. If an account is only in the name of one spouse, it may be difficult for the surviving spouse to meet their financial obligations while the estate is being settled and especially if the assets are subject to probate. (If your parent's don't have a trust, consider learning more about a transfer on death registration which would avoid probate for these types of accounts)
- Make sure that details and policy information are included with the estate planning documents for any life insurance policies, pensions, annuities, and social security claims
- Have your parents list their credit cards, outstanding debts, and any reoccurring payments (like a newspaper) and expenses to the extent possible. The executor will ultimately be responsible for closing these accounts before settling the estate, so the more information they have at their fingertips, the easier it will be
- If your parents still live in their home or have real property like antiques, real estate, cars, etc, keep in mind that these assets will ultimately need to be distributed or disposed of. This may be a difficult conversation depending on your family dynamic, but consider sharing your feelings with your parents if something has an emotional significance for you, or even the opposite. For example, inheriting a home from a parent can be a financial and logistical strain for adult children, leaving them to sometimes feel guilty for selling it later on. Having an upfront conversation about wishes and expectations can hopefully help avoid these dilemmas down the road.
- Ask your parents about their final wishes if/when you feel appropriate. If they don't know or don't want to talk about it, that's ok too. But when the time comes, knowing what your loved one would have wanted will make the arrangements much easier, so you can start the grieving process.
Younger families need an estate plan too
While you're working to help your parents get their finances in order, consider your own family's needs. Although in earlier stages of life it may not be realistic to keep such meticulous records of accounts, passwords, and so forth, you'll likely need the same estate planning documents prepared. Especially for families with young kids, there may be significant costs ahead to pay for college and care for the family on one income. Having adequate life insurance and disability insurance may be a key component of your financial plan. While you're taking the time to help your parents get their plan in place, consider taking a look at your own plan too.
Important disclosure: The material in this article is intended to provide generalized information only as to some of the financial planning considerations of putting a house in trust and should not be misconstrued as the rendering of personalized legal or tax advice. We strongly recommend you consult an attorney to discuss your personal situation and estate planning needs.
As a second generation family business, Darrow Wealth Management understands the delicate art of integrating wealth and family. For over 30 years, we have worked to help generations of investors in the community build, grow, and preserve their wealth to enjoy during their life and perhaps pass onto their heirs. To learn more about the benefits of working with a fee-only advisor and fiduciary, contact us today to schedule a call.