As families come together for the holidays ahead, financial professionals suggest adding a less traditional topic to the conversation lineup: estate planning.
No, no one believes that wills and trusts should be contemplated over holiday feasting, lighting a menorah, or opening gifts, but in the quiet moments that follow, a dialogue that seeks to clarify whether your aging loved ones have the documents in place to protect their personal and financial affairs is not only appropriate, but prudent.
“Having a conversation about estate planning around the holidays is a great idea,” said Hans Scheil, a financial professional with Cardinal Retirement Planning in Cary, North Carolina. “Most people spend all four days together over Thanksgiving and at some point they run out of things to talk about, so this can be an important discussion to have.” The same is true during the December holidays.
The key, of course, is tact.
Initiating a holiday financial dialogue
Many adults, regardless of age, delay estate planning because it can be uncomfortable to contemplate one’s own mortality. Others fear it is bad luck, or that, with modern advances in medical science, they have ample time to tend to their estate planning needs.
Due to the delicate nature of the topic, Scheil suggests adult children and loved ones broach the topic delicately — with utmost respect for privacy and personal comfort zones. (Related: Tips for talking money with an aging parent)
One easy segue is to discuss your own experience with estate planning, he said.
“It’s a good idea to do your own estate planning documents first or be working on your own and researching these topics yourself so you have more credibility when you go to Mom, Dad or Grandma,” said Scheil.
Initial reluctance to discuss estate planning can also sometimes be countered by sharing stories about other families that experienced infighting after a parent passed away. They aren’t hard to find. Remind the older generation that proper estate planning is a gift for those they leave behind. It spares their family from having to guess what their deceased loved one would have wanted at an already stressful time. Absent documents that clearly define their intent for end-of-life medical intervention, for example, adult children who disagree on next steps may become bitter with each other.
“We tell clients that this is important because it’s part of how your children and grandchildren will remember you,” said James Brocke, a financial professional with Westpoint Financial Group in Indianapolis, Indiana. “You don’t want to pass the burden along to them to make decisions, which can create total disharmony and discord. People need to take action as opposed to leaving it for their children to figure out.”
Among the siblings, the one who is generally perceived to be the most organized and financially astute may also want to offer to help their parents manage their bills if and when the need arises — especially if he or she senses the onset of cognitive impairment, or discovers turn-off notices and late-payment fees piling up. Staying current on monthly payments is especially important where insurance premiums are concerned, including health, life, home, and auto, in which failure to pay on time could result in a loss of coverage.
Remember, the goal of the holiday discussion is to ensure that your aging parents or loved ones have their financial house in order, not to pry, or in any way appear as if your inquiries are motivated by self-interest. As a general rule of thumb, said Brocke, concerned parties should avoid asking direct questions about account balances, beneficiaries, or the value of their estates. If help is invoked, Brocke suggests the younger generation offer to help Mom and Dad find a qualified financial professional, tax advisor, or estate planning attorney their parents can trust.
“If everyone is together, one of the adult children should head off any uncertainty at the pass by saying, ‘Don’t worry about us. We are fine. We just want to help’,” he said, noting that serves the dual purpose of reassuring the parents and defining the rules for any sibling or spouse who may have other goals. “Someone needs to say it.”
The legacy document list
While every estate plan is different, depending on which assets the individual is trying to protect, they all share basic elements. As you open a dialogue with your aging loved ones, keep in mind that many financial professionals recommend at least the following items for discussion:
- Last Will and Testament, which defines how you want your assets distributed when you die and who would care for any minor dependents. (Related: Will basics)
- Financial Power of Attorney, which is a legal document that gives another person the authority to make financial and legal decisions on your behalf in the event you become cognitively impaired or incapacitated.
- A health care directive, also called a Durable Power of Attorney for health care, which grants another person the authority to make health care decisions on your behalf in the event you become cognitively impaired or incapacitated.
- A living will, which often goes hand in hand with the health care directive, and spells out your wishes for end-of-life care (including artificial resuscitation and palliative care).
- The Health Insurance Portability and Accountability Act (HIPAA) privacy release form, which gives the health care providers who treat you permission to disclose your protected health information with the people you name so they can make more informed decisions on your behalf, if needed.
- Inventory of assets, which should include copies of bank and brokerage accounts, life insurance policies, and retirement plans, as well as a contact list for your family members of important financial professionals, such as your financial professional, lawyers, tax accountant, and bankers. Such information should be stored in a fireproof safe or bank safe deposit box, with account numbers, passwords, and/or keys made available to a trusted, designated executor for when the time comes.
- Passwords to social media and other online accounts or services.
Finally, remind your loved ones that if they own a retirement account, such as an individual retirement account (IRA) or 401(k), or a life insurance policy, they should review their beneficiary forms to be sure they are up to date, as any individuals named on the form (which could include a former spouse) will inherit those assets, even if it differs from those named in a more recent will.
Your aging loved ones, of course, need not disclose whom they have named as heirs, which might make for strained relations during holiday celebrations. But they should be advised to review their beneficiary forms periodically — and always after a major life event like a birth, death, or divorce, said Scheil. (Learn more: How to make sure your heirs don't fight)
Depending on the complexity of their estate, Brocke said seniors may also wish to consider a trust. Generally, assets or property titled to the trust are protected from creditors and legal claims. They will pass to beneficiaries outside of probate, the lengthy legal process of settling one’s estate after one dies. But trusts can also be costly to set up and are not an ideal solution for everyone. (Learn more: Is setting up trust right for you?)
“We tell clients that trusts are primarily a means of managing the distribution of assets from the grave,” he said, noting that an estate planning attorney is necessary to determine whether such financial instruments make sense on a case-by-case basis.
If they have not already had the discussion, adult children may also wish to inquire about how their aging parents envision old age. Do they plan to remain in their own home as long as possible, otherwise known as "age in place"? Do they hope to care for each other as health care/medical needs arise? Do they expect to one day move in with one of their kids, and, if so, are any of their kids in a position to provide at-home care?
Importantly, siblings should also ask whether their aging loved ones have assets sufficient to cover their projected medical costs, which are often underestimated. Fidelity Investments projects a 65-year-old couple retiring in 2022 with traditional Medicare insurance coverage will need an estimated $315,000 to cover out-of-pocket health care costs in retirement, not including any costs for long term care, which can easily exceed six figures.1
If they do not have enough savings to pay out of pocket, do they have adequate long-term care coverage? Or, perhaps they won’t need it if their income is low enough that they qualify for Medicaid, which covers more assisted-living costs than Medicare. These are all important points to discuss, said Brocke.
If your parents or grandparents are unwilling to disclose details about their estate plan, fear not. There may still be a way to open the door to a meaningful discussion about their finances.
Regardless of their desire for privacy, said Brocke, many seniors welcome the invitation to discuss their legacy, including philanthropic goals, work ethic, and values — especially with those to whom they may bequeath their estate. And the holiday season, with its emphasis on gratitude and family, may be the ideal time to bring it up.
“That’s what it’s all about,” said Brocke.
It may not answer all your questions, but it’s a start.
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This article was originally published in November 2016. It has been updated.
1 Fidelity Investments, “Retiree Health Care Cost Estimate,” August 29, 2022..