It's always been a touchy subject, but having discussions with our aging parents, siblings, and grown kids about money and possessions and how they'll be left to survivors is crucial to family harmony and financial well being.
We've learned through our own experiences as well as those of friends, that you can never plan too well when it comes to this enormous and highly-nuanced topic. Don't leave anything to chance or to just any lawyers or judges, who sometimes may not be up on all the familial dynamics and sometimes even the law. This requires meeting with a competent financial advisor and board-certified trusts and estates attorney.
As a start, try to cover these 13 vital must do's before you bid adieu. And when done, put it down on paper, have it notarized, scanned for hard and computer copies, and kept in a safe place--a safe deposit vault--and also in the cloud. Be sure that everyone who needs to know the whereabouts does and has easy access to the safety deposit box and the cloud by sharing any pass words.
- Will. If you really wanted that family portrait while your sister wanted the family jewels, say so to Mom and have her put it in writing. "I thought she was leaving it to me, won't cut it in court." Make a list detailed list and file it on paper and in the cloud next to the will. Discuss who is the executor, known as the personal representative.
- Durable Power of Attorney (for finances.) Be sure that a spouse or parent has given you a durable power of attorney for finances. This document allows you to make decisions if either person is incapacitated. Cover all cash, checking accounts, investments, real estate, furnishings, valuable art, jewelry, and even living expenses.
- Living will. This document stipulates what to do in case of a terminal illness -- do or do not intubate, use a feeding tube, resuscitate, and so on.
- Medical Power of Attorney (MPOA, Health Proxy). This gives a family member or friend authorization to make all health-care decisions when the patient is incapacitated, or otherwise unable to competently communicate her/his wishes. Rules vary by state so be sure you've signed one that's valid in the person's state of residence. Also provide a copy to your medical providers/doctors. If you want, it's also a good idea to include a signed HIPAA form signed by you so you’ll be able to share information with the right family members when necessary.
- Long-term care insurance. This is something that you hope Mom and Dad invested in a long time ago since it's tougher to come by and sometimes not affordable at an advanced age. But do you and your spouse or partner each have this kind of insurance? You should so you don't lose all your assets on medical care. Exceptions are if you have so few assets and income that you know you'll be using Medicaid and spending down 99 percent of assets, or if you have so much net worth that you'll be able to afford quality long-term care. This requires a conversation with your partner, or parent's financial advisor and also depends on your lifestyle. Furthermore, these numbers are a moving target based on the insurance policies available and their pricing.
- Ethical will. This conveys your or your elderly family member's wishes such as no formal funeral, whether you want a wake, to be cremated, where and how you want the funeral to be planned with songs, biblical passages, eulogies and those you want to give the eulogy, and flowers or if you don't allow so-and-so to attend. It's a way to share with others your last wishes from beyond the grave or hereafter.
- Beneficiary designation forms. Be sure that the rightful heirs are designated by naming them on all IRAs, annuities, and life insurance plans. There are forms to fill out in advance, and be sure all people update them once a year or when any situation changes.
- Trusts. Trusts might accomplish more of what your family wants if one or more children/grandchildren/heirs might not be competent to manage a lump sum inheritance. Even more so, they serve to protect an inheritance from a future divorce if you don’t want your son or daughter-in- law to inherit your assets. The contents of a trust, will, and other documents should all be coordinated and viewed by the trusts and estate lawyer and financial advisor. consider having the will state, "I leave all to my trust and is termed a pour-over will." Problems sometimes develop when multiple advisors are used and even in different states. Also, know whom you want to tap as trustee or whom a parent has so named. Update the trust as family situations change i.e. grandchildren, divorce, death. Questions to consider in advance: Should assets be divided equally, should a subtrust be set up, should a family member oroutsider be the trustee? There are pros and cons to each.
- Possessions. This is a wise idea because of natural disasters, fires, thefts, divorces, deaths, and disagreements. Do an inventory with digital photos or a video recording. Make a written list room by room that matches your photos; add documentation of purchase dates if you have, original prices, updated appraisals by expert professionals in each field. Update these lists yearly, so your brother doesn't say, "You're getting the most expensive furnishings!" Scan and save them on a computer file and in a cloud.
- Real estate. Often this can be the biggest asset. Make sure your attorney has reviewed the titling of all real estate so that it coordinates with a will, a trust, and most importantly, the owners’ wishes about disposition of the real estate upon the death of the last owner. Leaving a house or apartment to multiple children can present challenges if one wants to keep it and another wants to sell. If you want to divide your estate evenly and have enough assets to offer one child the real estate and other children money, do so.
- Outright lump sum distribution. This is what will happen from only a will or most beneficiary designation forms. If an heir will not competently manage a lump sum inheritance, explore trusts. Although more complex, a trust can be the beneficiary of an IRA, life insurance policy or annuity.
- Life insurance on inheritances. Federal estate taxes can be exorbitant on inherited funds but they can be offset in many cases by purchasing life insurance in advance. Good planning by an estate & trust attorney might also lower the tax bite, but be sure the extra complexity is worth it. Also, know the current limits--if below $5 million now there are no federal estate taxes.
- Master financial checklists. Many professionals term these lists crucial parts of a "Survivors’ Guide," which shows what's in each list as well as where everything is kept. Do both on paper and digitally in a cloud. Also list where you keep a safe deposit key, where the safety box is, any passwords for crucial computer information, and a list of all bank accounts, credit cards, investments, and other important documents such as cemetery plots.
As Benjamin Franklin said: “By failing to prepare, you are preparing to fail.”