Almost as important as doing your own estate planning is making sure your parents have a plan in place for after they’ve passed. The number one reason to be concerned? If things are left a mess, YOU are likely to be the one cleaning it up.
Just ask anyone who’s had to administer the estate of a parent who died without any legal documents, and they’ll likely tell you about the hundreds of hours they spent straightening out messy financial records, mediating sibling fights over sentimental heirlooms, and dividing up family vacation homes. Add to that guardianship proceedings for incapacitated parents and family disputes over end-of-life decisions, and your parents’ failure to plan can end up costing you time, money, and the better part of your sanity.
How to Raise the Subject
While estate planning isn’t the easiest topic to broach with your parents, we suggest bringing it up in the context of your own estate planning. For example: “John and I just met with an attorney about our wills and putting a trust in place to make sure that little Suzie will be taken care of if something happens to us. Have you talked to an attorney about your will recently?”
A good estate planning attorney will likely ask you whether you expect to receive a substantial inheritance and how the inheritance will be structured, since this could affect your future estate tax exposure. Likewise, if your parents run out of money for long-term care, the burden may fall to you, affecting your ability to reach your own financial goals. Framing your inquiry in the context of your own planning can make it easier to address your parent’s financial issues. You can easily blame your need-to-know on your attorney or financial advisor.
What You Need – and Don’t Need – to Know About Your Parents’ Planning
The more information you have about what to expect the better; however, some parents are reluctant to share details of their financial situation or how they plan to leave their assets after they’re gone. If this is the case, ask them if they’ve talked to an estate planning attorney in the past five years. If not, suggest that they make an appointment – and follow up to make sure they’ve done it. You might also recommend that they work with a financial advisor to analyze their finances and determine whether they’ll have sufficient funds to cover potential long-term-care expenses. It may not be necessary for you to know the details of your parents’ financial situation or their end-of-life wishes; simply knowing that they are working with a professional to put a plan in place may be sufficient to put your mind at ease.
It is important for you or someone in your family to know if legal documents have been executed and where to find those documents. It’s also important to have the contact information for their lawyer, accountant and financial advisor in case you need to contact them in an emergency.
What Your Parents Should Have in Place
At an absolute minimum, your parents should have in place a will, a power of attorney, and a healthcare proxy. The will directs who should receive any assets that are left and names an executor to administer the estate. The will may also indicate whether a burial or cremation is preferred, taking the guesswork out of wondering what they would have wanted.
A power of attorney allows a trusted friend or family member to manage your parent’s finances if they become incapacitated. Without a power of attorney, you or another family member will have to petition the court for guardianship – an expensive and emotionally difficult legal process whereby a person is declared incapacitated by a court of law. A healthcare proxy authorizes someone to make medical and end-of-life decisions for your parent. This document can prevent family disputes about what course of action to take in the event your parent is unable to make decisions about his or her own medical care.
If your either of your parents lack long-term care insurance, they may benefit from Medicaid planning, which generally involves shifting assets from your parents’ names into the names of you and your siblings in order for one or both of them to qualify for Medicaid. In the absence of such planning, your parents entire life savings can end up going to pay for medical expenses. Because Medicaid planning generally eliminates your parents’ control over their assets, however, it should only be done if they accept and are well informed about the consequences.
Talking to your parents about estate planning and making sure they have the professional assistance they need will go a long way toward making sure they are well-cared for into the future and ultimately making the process easier for you and your siblings.