How to navigate estate planning with people you love
Estate planning is a cornerstone of any healthy budget, but it can be hard to discuss.
Though end-of-life preparation is a sensitive topic, sitting down to think about a loved one’s estate and distribution of wealth not just sets families at ease but guarantees smooth transitions of assets without unnecessary legal hurdles.
Estate planning meetings frequently occur between adult children and their elderly parents. Still, in my role as a financial advisor, I bring up estate planning with clients, whether they’re seventy or thirty-one. It is never too late or early to start because you can never predict if you’ll need a property. If you are on the fence or have questions thinking about beginning the estate planning process by having a close relative, such as an elderly parent or a new spouse, here are my top 3 recommendations.
1. Emphasize peace of mind the ultimate benefit:
Estate planning helps the transfer of property take place seamlessly and minimizes estate tax liability of your assets in case of your passing. But, in my experience, the customers feel that the foremost benefit of this process is simply reassurance, and it is essential to emphasize the value of its outcome when broaching the subject.
The property will give your family member greater confidence that their loved ones, or designated associations, will receive the property they want them to have after they pass –with as little cost and hassle as possible. By way of instance, over the decades, many customers have expressed to me what they need their funeral to seem like–without placing it down on paper, their loved ones or friends might not have understood to organize the services they hoped for.
2. Be as open as possible
The best straightforward way to approach an estate planning conversation is with an open mind. This is the time to be honest and speak openly about your loved one’s wishes on how they’d love to distribute their property and riches either during life or death.
Many assumptions can be made about end-of-life financial planning, like parents who assume their kids will not struggle to divvy up their assets. I’ve heard from many clients that they absolutely won’t work about their parents’ estate because their kids get along. Unfortunately, this assumption can place a lot of strain on living siblings. So instead of making guesses, it is best to communicate clear expectations during the planning process and ideally to use a legal professional and financial advisor by your side. It’s important to be thoughtful about the range of trustees and executors. Invite your parent or partner to name an executor who’s organized and thorough. When this person is selected, be sure they understand where all of your loved one’s assets are. It can be highly challenging for an executor to manage an estate with no idea where to start.
3. Pay careful attention to the beneficiary selection
Assigning beneficiaries may have significant tax consequences. Therefore, this is an essential consideration when studying estate planning with your family member. It’s pretty common, as an example, to name a trust as the beneficiary of IRA accounts when your children are young. However, as they grow up, this arrangement can get troublesome.
When an IRA is distributed to, it strikes the income tax cause straight away. But, if, instead, your loved one chooses their children as direct beneficiaries of the IRA, those kids are going to have other alternatives available to them independently of one another. Some of those options could provide substantial income tax savings.
Another sticky situation potentially is the “transfer on death” designation for individual accounts. Probate can be a lengthy, often expensive procedure –and the cost is unnecessary if you put up an appropriate “transfer on death” designation.
For all these reasons, I am adamant about reviewing inheritance after a year with my clientele. But, first, the family needs to understand the ins and outs and repercussions of naming different beneficiaries. The best time to go over estate planning with your loved ones or parents would be, honestly, now. When you are considering it, and it is top of mind, you can implement a program that can give all parties confidence. Engaging a financial advisor to assist you in navigating the process will help you and your family member comprehend different possible strategies and the results of each to plan and have greater peace of mind moving forward.