If you have a parent over the age of, say, 65, thoughts about their future may have started to creep into your mind. But because end-of-life planning can be emotional and overwhelming, it’s tempting to put these conversations off — and even more pleasing to avoid them altogether. If there’s a lesson to be learned from the pandemic, however, it’s that waiting until the last minute to prepare is seldom a good idea.
Not having a plan can create two types of obstacles when a parent dies. First, it can leave you scrambling to unravel their financial picture while trying to grieve, says Cameron Huddleson, author of “Mom and Dad, We Need to Talk.” And second, it can be costly.
A good way to avoid both scenarios is to start talking with your parents about estate planning. Although the term can sound like a task reserved for high-net-worth individuals, it’s an essential process that ensures clear directives exist for all sorts of situations that accompany the end of life.
Here’s a breakdown of why estate planning matters, plus some tips on getting started.
Why estate planning matters
Setting intentions and priorities
An estate plan is an opportunity to set mindful intentions about life’s inevitabilities. So asking your parents to take stock of their assets and belongings (including digital records and policies) is not just about the numbers and paperwork; it’s also a chance to gauge preparedness. Careful planning also ensures that you can step in during a medical emergency or if a parent becomes incapacitated.
You can start by asking your parent(s) the following:
Who do you want as your primary caregiver?
How will we pay for health care expenses?
What are your medical care preferences? Who should make medical decisions on your behalf?
How should we handle your property when you die? Should we sell it, or should someone in the family inherit it?
Do you have any valuable items that you want to be handled in a specific way?
Where are your most important documents? Do we have access to all of your digital records?
Inheritance looks different for everyone
Inheritance often requires probate, the legal process of distributing assets. If the correct documents are in place, it can be a relatively quick and painless process. But when someone dies intestate, meaning without a will, things can get tricky.
“Whether you’ve written your will or not, there is an estate plan in place for you — and it’s the one that the state has created,” says Joshua Goldstein, a partner specializing in wills, trusts and estates at Davidoff Hutcher & Citron in New York.
Each state has its own rules, but the common denominator is that the state may need to step in if there is no will. And depending on the situation’s complexity, you might need to hire a lawyer. In addition, the hours spent tied up in legal proceedings can add up. So, ensuring that your parents have a will in place and that beneficiaries are clearly stated in all policies and documents is a preventative measure that can pay dividends.
Estate planning is tax planning
When wealth transfer occurs, meaning assets are passed from one person to another, taxes are inevitable. And a good estate plan should seek to minimize liability.
Several types of assessments can come into play when someone dies, but the common ones are estate and inheritance taxes. Most people won’t be affected by federal estate tax (in 2021, it applies only to assets over $11.7 million), but states have their own rules and thresholds when it comes to both types of taxes. In Pennsylvania, for example, if you inherit your parents’ home, you would have to pay a 4.5% inheritance tax within nine months of their death. On a $400,000 home, that could equal up to $18,000.
Strategizing with a tax-planning professional can help your family anticipate — and possibly mitigate — some of the financial burdens that come with transferring assets.
How to talk to your parents about estate planning
Preparation is key. Here’s a quick guide to ease into the conversation.
Know the documents. An estate plan can include the following documents: a will, a power of attorney, a health care proxy and even a trust. Each one serves a different purpose, but what they have in common is that they all name a designated party to act in a way that’s recognized by the law. Know the documents to find out if your parents already have any or if any need updating.
Be mindful of family dynamics. Consider who should be involved in the conversation. If you have siblings, this is an excellent time to get on the same page. If you’re part of a blended family, it’s a chance to clarify the chain of command. Getting all this information hashed out now can help your family avoid disputes later.
Pick a time to talk (though there’s usually no better time than the present). Suppose you’re having trouble broaching the topic, in addition to the questions listed above. In that case, there are plenty of scripts and strategies that can serve as conversation starters, says Amanda Singleton, an AARP family caregiving expert. You can also use anecdotes or even ask for advice on your estate planning to ease into the talk.
Look into professional help. A well-crafted estate plan should involve a qualified professional. This can be a tax-planning expert, a wealth manager or an attorney specializing in wills, trusts and estates. Whomever you choose to loop in, make sure you research their background and qualifications.
Follow up. Estate planning is information sharing, says Michael Liersch, head of advice and planning for Wells Fargo Wealth and Investment Management, and it requires frequent check-ins and follow-ups. “The conversation really doesn’t have an end. It has a beginning and evolves, but it’s really critical not to think of it as a one-and-done conversation.”
The most significant benefit of a well-thought-out estate plan is it can allow you to focus on what matters most when hard times arrive, like grieving and supporting your family.
And the key to navigating all of these steps successfully? Gratitude, according to Liersch. When you’re estate planning with your parents, it’s one of the best ways to start the conversation — and to keep it going.
This article is meant to provide background information and should not be considered legal guidance.