PUBLISHED MON, NOV
9 20208:20 AM ESTUPDATED WED, NOV 11 202010:32 AM EST
KEY POINTS
·
Even those with
thorough estate plans might have neglected to discuss details with potential
heirs.
·
Certain aspects of
your end of life plans should be shared with adult children, say advisors.
·
How much you share
should take family dynamics into account.
So
you finished your estate plan.
You
finalized a will, made sure beneficiaries are named on financial accounts,
signed all other pertinent documents and picked an executor to carry out your
wishes when you die.
You
might have overlooked one consideration: whether you should share the details
of your efforts with your adult children.
“This
is a tricky one and definitely depends on the family,” said Kristi Sullivan, a certified
financial planner and owner of Sullivan Financial Planning in Denver.
It’s
a sentiment echoed by many advisors. Yet they also said there are certain parts
of estate planning that should be shared — regardless of whether money is part
of that discussion.
An
estate’s value at the time of settlement varies widely: Most are worth between
$50,000 and $250,000, according to a 2018 survey by EstateExec.com, an online software provider. About 11% are
worth under $10,000 and 11% more than $1 million.
Family
conflict, however, is common in many cases regardless of the estate’s value:
More than 44% of survey respondents said it has happened in their family. In
other words, even if you view your estate plan as tidy and definitive, it still
could blindside your adult children when you’re gone.
“Do
you want your bequests to children to be about resentment, whether toward each
other or toward you?” said David Mendels, a CFP and director of planning at
Creative Financial Concepts in New York.
The basics
In
basic terms, “estate” just refers to everything you own when you die: your
financial assets, real estate and possessions. An estate plan focuses on making
sure those things end up where you want them to, as well as anticipating other
end-of-life considerations.
If
you die without a will — called dying intestate — the courts in your state will
decide who gets what. That process is public and often messy if would-be heirs
have competing priorities and conflicting notions of what is rightfully theirs.
However,
not everything about an estate plan deals with money or other assets you’re
leaving behind.
For
example, it’s generally recommended that you assign power of attorney to a trusted
person to handle your finances if you reach a point when you can no longer can.
Same goes for medical decisions. Experts also say it’s wise to have a living
will (also called an advance health-care directive), which outlines your wishes
if you become incapacitated due to illness or injury (i.e., whether you want to
be left on life support).
VALUE
OF SETTLED ESTATES
|
LESS THAN $10K |
|
11% |
|
$10K TO $50K |
|
17% |
|
$50K TO $250K |
|
30% |
|
$250K TO $500K |
|
18% |
|
$500K TO $1 MILLION |
|
14% |
|
$1 MILLION-$5 MILLION |
|
8% |
|
MORE THAN $5 MILLION |
|
3% |
Source: 2018 survey by
EstateExec.com
“In
virtually every circumstance, you should tell your kids who is in charge of
that stuff,” Mendels said. “They need to know that, and they shouldn’t find it
out when you’re lying in a hospital bed unconscious.”
For
the money side, though, it’s far more of a gray area surrounding the question
of how much you should tell your kids. However, there are considerations that
can help you make that decision.
“Some
clients simply want to keep their finances and plans private for a variety of
reasons,” said CFP George Reilly, principal of Safe Harbor Financial Advisors
in Occoquan, Virginia.
“In
those cases, I strongly encourage them to at least notify their loved ones — or
at a minimum anyone they have appointed a fiduciary role — of the existence of
the plan, the [individuals] who have responsibility, and the location of plan
documents and other things,” said Reilly, who also is an estate planning
attorney.
He
said sharing those basics helps prevent the family from hunting for information
about the decedent’s assets and liabilities — especially when many people now
use online resources to get and store that information.
“In
the old days you could wait on the mail to bring statements and bills, but many
folks use online resources now and the ‘hunt’ is that much harder,” Reilly
said.
What may influence your decision
Again,
how much you share can depend on family dynamics.
“When
the subject comes up with clients, I say, ‘You know your kids better than I
do,’” Mendels said. “You have to think about the individuals you’d be talking
to and how they’re going to respond.”
For
example, your children may be doing their own financial plan — figuring out
their short- and long-term goals and how to fund them. If they were to find out
an inheritance may be coming their way, they could factor it into their own
planning.
If the client believes a peaceful transfer of assets
is likely, it can help adult children with their own financial planning. Kristi Sullivan OWNER
OF SULLIVAN FINANCIAL PLANNING
“If
the client believes a peaceful transfer of assets is likely, it can help adult
children with their own financial planning,” said Sullivan at Sullivan
Financial Planning.
She
also said that if the inheritance would be unexpectedly large, it may be worth
preparing your kids for it.
“It’s
surprising, but sometimes inheriting big sums of money can have a traumatizing
effect on the heirs if they are totally unaware of what’s coming,” Sullivan
said.
Additionally,
if you are not splitting everything evenly, it may be worth communicating that
in advance. For example, if one child has special needs and you are directing a
sizable portion of your estate to their support, it may be worth warning the
other siblings who are self-sufficient.
“You
may have very good and well thought out reasons for what you’re doing, but if
you don’t communicate with your kids, they won’t know,” said Mendels at
Creative Financial Concepts. “And when they find out, you’re not there to
explain it.”
On
the other hand, some adult children may not be well-equipped to handle the
notion of an inheritance.
“If
it’s substantial money, they might think, ‘Oh, I don’t have to do anything now
because I’ll be rich someday,’” Mendels said.
And
if your children ask you about your money situation? Don’t assume the worst,
advisors say.
Sometimes,
they may just want to know that you have the financial wherewithal to get
through your life, regardless of what you leave behind.
“Maybe
they just want to know you’re okay,” Mendels said. “Maybe they’re wondering if
you’re going to come knocking on their door to move in because you ran out of
money.”
Regardless
of whether you share the dollar details or just the need-to-know basics,
communication can go a long way.
“My
experience is that most people err too much on the side of not talking,”
Mendels said. “Trying to err on the side of communication on most things is
probably good advice, not just specific to money.”
https://www.cnbc.com/2020/11/09/how-much-shou.html
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