Discussing estate planning with your aging parents, family members, or children may be difficult. However, it is part of the estate planning process to prepare for incapacity or death to help loved ones left behind.
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Before approaching the topic of estate planning, make sure you clearly understand how estate planning works and the different tools to plan for incapacity during your lifetime and for easier estate administration after death.
Understanding Estate Planning
There are many estate planning tools to help you during your life and after your death. A financial power of attorney, health care directive, and last will and testament are helpful documents to protect your family and your assets.
Financial Power of Attorney
A financial power of attorney allows your agent or attorney-in-fact to handle your financial life if you become incapacitated or even for convenience. For example, you may authorize your agent to pay bills, access accounts, and make financial decisions on your behalf. Or you may grant authority to only handle a single real estate transaction. You decide what powers to grant and when the authority begins and ends. Examples of powers you may grant include the following:
- Pay bills and maintain your family’s expenses
- Manage your bank and brokerage accounts
- Manage investments and retirement accounts
- Handle real estate transactions
- File and pay taxes on your behalf
- Purchase long-term care insurance or other insurance products
- Run your business
- Make gifts
- Consult an estate planning attorney for legal advice
- Consult a financial advisor or financial planner to help with wealth management
- Consult a tax professional to file taxes
Your agent has a fiduciary duty to act in your best interests, or they may be subject to civil litigation and criminal charges.
You can revoke a power of attorney at any time if you are competent. Once you die, your power of attorney ends. At that point, the personal representative or executor of your will manages your property.
Health Care Directive
A health care directive allows you to name someone to make medical decisions for you when you can’t (also called medical power of attorney, health care power of attorney, or health care proxy.) You may also provide instructions on what health care treatments and life-prolonging measures you want for end-stage or terminal conditions in a living will (also called advance directives.) You may also include wishes for long-term care placement, organ donation, or funeral instructions.
Last Will and Testament
A last will and testament provides instructions for who handles your estate (your personal representative), who inherits your property (your beneficiaries), and who cares for minor children or dependents (their guardians). You identify your property to be given in a will with the corresponding beneficiary. The benefit of a will is that you are in control of your decisions. If you die without a will, the probate court relies on state intestate laws to distribute your property. They also make decisions on who cares for your children or dependents. A will speeds up the probate process, saving time and money.
You own property that passes outside of the provisions of the will. This means it passes on its own terms, irrespective of will instructions. Examples of property that does not transfer by will include:
- Property placed in a living trust
- Property held in joint tenancy
- Payable-on-death bank accounts
- Investment accounts with beneficiary designations
- Retirement accounts with beneficiary designations
- Real property transferable to a beneficiary with a transfer-on-death deed
- Transfer-on-death designation for vehicles
- Life insurance policies with a beneficiary designation
Therefore, it is a good idea to review if you have the correct beneficiary and include a backup beneficiary if your primary beneficiary dies before you. Any account or policy without a beneficiary designation may end up in your probate estate.
Talking to Your Parents
Your parents may not welcome conversations regarding their end-of-life care and estate plans. However, adult children must figure out what financial planning or estate planning their parents have and what they should prepare. Be sensitive to their feelings and follow these dos and don’ts of talking to your parents about estate planning.
Primarily, you should ask them how they want you (or someone else) to handle their affairs if they face an incapacity. An estate planning conversation may begin with talking about their experience caring for their parents. Ask them what they learned and what wishes they have about their future.
It will help you and your family make decisions when your parents are hospitalized or near death. It is easier to honor their wishes than figure out what they would have wanted.
Talking to Your Siblings
If you are putting together your estate plan, loop your siblings or extended family in these important conversations. Especially if you want to name a sibling or family member as a personal representative, agent in a power of attorney, or guardian of your children, it is best to get their permission first.
You may also want to outline your instructions or wishes regarding acting under your financial or medical power of attorney. Or specify your desires for raising your children if you cannot.
Talking to Your Children
Depending on their age and maturity level, talking to your children about your preparations for the future may be helpful. If your children are young, you may want to assure them they will always be cared for by a loved one. If they are older, you may want to share medical or financial information so they can help you if you are incapacitated.
And you may want to explain your decision-making. For example, suppose you have two children: one is a teacher, and the other is a dotcom millionaire. You may give the teacher a larger share of your estate because your other child has little need for the money. Even though it is equitable, it may be perceived as unfair and cause hard feelings. You might call a family meeting or have independent discussions with your children about your decisions and the thought process behind them. You know your unique family situation to know what information is appropriate to share.
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Create Your Estate Plan
However, merely talking about estate planning isn’t enough. You must draft the necessary documents to protect your family and your money. You may prefer a self-service option with state-specific estate planning documents or hire an estate planning attorney.
