How Can I Talk to My Parents About their Estate Plan?

Or
“I want a Trained Squirrel and I want it NOW!”

One of the most frequently asked questions I get is, “How can I ask my parents about my inheritance without seeming like a gold-digger?”

Well, the short answer is, you can’t. If you want to ask your parents about what and how much you’ll inherit, there’s no way around looking and sounding just a little like Veruca Salt.

[youtube]http://www.youtube.com/watch?v=TRTkCHE1sS4[/youtube]

But, there are other issues with your parents’ planning that are relevant to you that would be good to know, if they’re willing to share the information.

Start with the premise that your parents don’t have to give you diddly when they die, and they are not obligated to tell you anything about their planning at all. Many people feel their estate plans are very personal and they don’t want to talk about it. That’s okay. They probably don’t want you to think you can sit on your tush and do nothing waiting for them to die. That’s a parent’s prerogative.

However, there are aspects to our parents’ planning that are important to inquire about as they do affect you and your family directly. You can ask your parents, without revealing more than they are comfortable with sharing, these questions:

1.  Have you done your estate planning?

Many parents haven’t planned at all or have cheaped out on their plan to such a degree that the plan won’t even work. If they haven’t completed their legal planning, suggest that they consult with an attorney—many offer complementary orientation meetings—to find out what will happen to their assets and their family when they die or if they are incapacitated.

If your parents have completed their legal planning, but it’s been more than five years, they should visit their attorney for an update. The law and their assets change continually. An estate plan is not a set-it-and-forget-it endeavor. It’s something that should be taken out and driven every three to five years to make sure it still works.

2.   Am I or is one of my siblings serving as a fiduciary in your plan?

If so, would you make sure that the risk of fighting is minimized? Feelings get hurt when one adult child is chosen over another, bringing to the surface sometimes long dormant rivalries. Some alternatives to suggest:

• Name a professional fiduciary instead of a child, if your children are likely to argue with the fiduciary or litigate over your estate.
• Meet with each of your children and tell them who will serve and why. Then have a family meeting with your attorney to detail your expectations of your kids and your plan.

3. If I am to receive something from your estate, will it be protected from my creditors?

Estate plans can be designed to pass assets in a way that protects them from others who might want to separate wealth from inheritors. Some parents find this invaluable. Others prefer to allow their children to suffer the consequences of their own actions and if an inheritance is lost due to poor financial decisions, so be it. Whichever way your parents decide, this can be good information to know.

4. Will my children inherit directly?

Having grandchildren inherit directly without some command over the assets by their parents undermines parents’ authority to guide their children to adulthood. If your parents choose a generation-skipping plan, ask them to consult with you and your siblings to ensure that they have not undercut their authority with the broadsword of money. If they are leaving assets to their grandkids, they have an obligation to abide by their children’s wishes for their kids.

5. Are your healthcare documents up to date and HIPAA compliant?

If your parents are unable to make decisions for themselves, they should decide who will make those decisions and tell them their wishes. If their documents are not HIPAA compliant, healthcare organizations may not honor their declarations or their agent’s decisions. This can cause undue suffering or needless delay while the family gets a court order to determine their care.

6. If you have a trust, has it been properly funded?

Many families hold their assets in Revocable Living Trusts. A trust privatizes your estate if you’re incapacitated and when you die. Done properly, this keeps probate courts out of your business so that your family has immediate and private access to and seamless management of your estate.

If your parents have a trust, make sure it’s properly funded, meaning that their trust owns everything it’s entitled to own. Many trust plans fail because owners and their attorneys have not followed through on making sure trusts are funded.

7. Did you find out what your estate tax liability is?

Many parents have seen an attorney only to turn and walk away from planning due to sticker shock. That’s understandable. Good planning with a qualified attorney who will take the time to get to know you and your family is not cheap. Nor are some of the techniques we employ without added third party costs such as appraisals and insurance premiums.

But do the math. Your parents need to know what their estate is worth because the IRS will absolutely determine that after they die. If they don’t want to pay the price to find out what their estate is worth, their family will probably pay a much higher price later. This happens often in families with hidden wealth, farmers and ranchers, and successful entrepreneurs who are absolutely certain their business will go under when they die—even when they have 20 employees.

If they don’t know the value of their estate and plan for the estate tax, their family could end up having to liquidate their estate at a fire sale to pay estate taxes. And that’s a shame.

8. What are your wishes and plans if you need long term care?

70% of Americans will need assistance at some point in their lives. And as we live longer and longer with aging bodies, that number will grow.

Have your parents either set aside enough resources to pay for their care or purchased long term care insurance to pay for that care? The consequences of not including long term care in their life planning are monumental. Your parents could:

• Use up all their retirement savings on just one spouse because the average cost of care is over $5000/mo, and in some areas over $10,000/mo. That could leave the other spouse destitute even if they thought they had saved enough.
• Be disqualified from receiving Medicaid benefits because they own too much.
• Be at the mercy of being placed in a facility where they would not be happy because your parents lack the proper resources to live somewhere they would be happy.
• Place a large burden on their families that are already struggling to keep their heads above water if their children choose to support them.

Ask your parents to please consider investing in long-term care insurance. While expensive now, it will only get more expensive and harder to qualify for as they age. Suggest that they lock in a product with inflation growth so they can assure their kids that they’ve got that under control.

Remember, adult kids, our parents are living much longer than they even thought they would. A lot of parents will need every last dime they have to support their lives until their last breath. And that is the way it should be.

Here’s the most magical advice I have for kids who think they may inherit:

Expect nothing and you will not be disappointed.