A failure to communicate can cause issues in every facet of life. More and more, the advisors I work with are saying that their baby boomers are having trouble starting conversations about financial, medical and end-of-life issues with their aging parents. This affords financial advisors a tremendous opportunity to cement their relationships with their baby boomer clients and, perhaps, garner the assets of the parents in the process.
I recently met with a financial advisor at a local restaurant in Brooklyn to provide her with some guidance on facilitating conversations between her baby boomer clients and their parents. The genesis of our meeting was the direct result of her acknowledgement of a growing need to provide answers to her client's questions about estate planning/legal considerations pertaining to their parents.
During our meeting, she shared with me that the biggest stumbling block her clients were facing was finding the courage to sit down with their parents and begin these critical conversations. I suggested that her clients initiate a dialogue with their parents by starting with questions similar to the following:
"We never know what tomorrow holds; and though I plan to be around for many years to come, I have begun to devise a plan in case something were to happen to me. Have you thought about doing the same?"
"Mom and Dad, you both know how much the beach house means to this family. We have gathered there every summer since I can remember. What would you like to have happen to the beach house upon your passing?"
"The other day a colleague shared with me that her father recently passed away after suffering a massive stroke. She went on to tell me that her father remained on life support for months because he never outlined what measures he would like to be taken to preserve his life. It created a hostile situation, as family members couldn't agree on what his wishes would have been. Have you thought about putting your wishes in writing to avoid such a problem for our family?"
During our meeting, I also provided her with a list of key points that I feel important are important for financial advisors to remember in order to position themselves as a resource and advisor of choice.
A current will may be the most important document to a persons' estate. It provides direction on how they would like their assets distributed upon death. Many people pass on without a will, which leads to turmoil between surviving family members who are often unable to agree on what the deceased would have wanted.
A will should:
- Say how a person's property is to be distributed at death
- Name the executor of the estate
- Provide for the payment of cost incurred in settling the estate
If the family does not have an estate attorney, a financial advisor can help to find one via their network.
Moreover, it is important that a will is treated as a living document. When dealing with aging parents, it is important to look for:
- Significant changes in financial circumstances
- Change of residence to a new state or country
- The birth of grandchildren
Probate is the court process of transferring property upon a person's death. It can be avoided by putting assets into a living trust, which may eliminate the need for probate. I will further discuss living trusts later in this article. The person does not have to give up control of their assets, and can be certain that their estates are settled quickly when they pass on.
Double-checking beneficiary designations can reveal how much a person's wishes may have changed throughout the years.
Life insurance, annuities, IRAs, brokerage accounts and other types of financial accounts may have a beneficiary designation. This designation names the person who will receive the proceeds at the time of the contract holders' death.
Nolan Baker and Mark Clair, known as The Retirement Guys, wrote about a real life scenario in their article, "Beneficiary mistakes cost a fortunate" (published on June 11 2009 in the Toledo Free Press
Anne, before she got married and had children, named her sister as beneficiary on her retirement account. Later, she got married and had children, but the beneficiary designation was never changed. When Ann died in an unexpected accident, who got her retirement account? A Supreme Court ruling mandates that it go to the sister. The court stated that, although it was probably her intent to leave the money to her husband and children, the only evidence in writing stated it should go to her sister.
It is also important that a financial advisor show a basic understanding of the different legal options available. This will not only make them feel more confident when networking with attorneys, but will also empower their clients and their clients' aging parents to be comfortable when discussing estate planning issues with their attorney.
Power of attorney:
A legal mechanism that empowers a designated person to make property, financial and medical decisions for the principal, the person who signs a power of attorney.
Medical power of attorney:
This authorizes a designated person to make health care decisions for the parent in case they are not capable of making decisions for themselves.
Without this document, the decision will be put in the hands of the health care provider, which may not be want the parent would have wanted.
This is a legal document written before someone is incapacitated by illness. It allows a person to state their preferences in regards to medical care. The two forms of advanced directives that are most widely known are a living will and a durable power of attorney for health care.
A living will instructs a hospital, physician or provider of medical care to administer no life-sustaining procedures if a person is terminally ill or permanently unconscious. For example: The parent has always said that if they were to slip into a coma, they would not want to be fed through a tube or have to be put on life support to keep their heart beating. The law requires that they say so in a living will.
Last will and testament:
A last will and testament deals with financial and legal issues, contrary to a living will, which deals strictly with health care issues. This legal mechanism protects assets and helps minimize the chances of a person's estate being contested. Without this document, this person's estate will not be distributed based on their original wishes.
Advisors can increase their credibility even further by educating both adult children and their aging parents on basic types of trusts related to estate planning. Trusts may be effective tools to assist and make life easier for the surviving family members of the ,r could be part of a strategy to cover estate settlement costs.
Types of trusts
Irrevocable living trusts
- When an irrevocable living trust is established, the creator gives up control of the assets to the trustee. This means the creator of the trust no longer has the legal right to control the assets in the future, unless the creator is also the trustee.
Revocable living trusts -
For those who want to maintain control of their assets, a revocable living trust can place property in a trust, while still giving the creator the legal right to take the assets back by revoking the trust.
Reasons to use irrevocable trusts:
Reasons to use revocable living trusts:
Assets held in the name of a revocable living trust at the time a person becomes mentally incapacitated can be managed by their disability trustee instead of by a court-supervised guardian or conservator
- Reducing estate taxes: Irrevocable life insurance trusts (ILITs) are commonly used to remove an asset from a person's estate. The person who transfers assets into an ILIT is handing those assets over to the trustee and the designated beneficiaries of the trust so that the person no longer has ownership of the assets. Since the person no longer owns the assets, they cannot be taxed when the person later passes away.
- Asset protection: Another use of irrevocable trusts is to provide asset protection for the person who makes the trust and their family. The assets are placed into an irrevocable trust, the person who made the trust is giving up complete control of the assets, and therefore, the trust assets cannot be reached by a creditor of the person who created the trust. Family members can be the beneficiaries of the irrevocable trust, thereby providing the family with the assets, but outside of the reach of creditors.
- Charitable estate planning: A popular use of an irrevocable trust is charitable estate planning via a charitable lead trust or charitable remainder trust. The person creating the trust distributes assets into a charitable trust while they are living, in turn receiving a charitable income tax reduction in year the transfer was made.
As mentioned earlier, assets held in a revocable living trust at the time of a person's death will pass directly to the beneficiaries named in the trust agreement and avoid probate.
By avoiding probate with a revocable living trust, the person's trust agreement will not be included in a public record for all to see. This will keep the details about the assets and who received them private.
Note: A last will and testament that has been admitted to probate becomes a public record that anyone can read.
Additional Resources for those caring for aging parents:
Elder Life Planning -- www.elderlifeplanning.com
The National Academy of Elder Law Attorneys (www.naela.org)
he Complete Eldercare Planner: Where to Start, Which Questions to Ask and How to Find Help, by Joy Loverde, Times Books, 2000.
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