You may remember the television commercial about how important it is to have your car’s oil changed regularly. It went something like this, “pay me now, or pay me later”. We all knew what they were getting at: either pay attention to what needs to be done today, or you’ll have to deal with the consequences later. The same message applies to the uncomfortable conversation with your parents (or older relatives) on the need for an up-to-date estate plan. Without such a plan in place, the responsibility could fall to you to make difficult decisions when your parents die or become incapacitated. Making those decisions can be doubly difficult if you don’t know what their intentions were.
For some families discussing these matters can be threatening. Parents may question the need for such a conversation. It may prompt fears over their loss of independence, incapacity, or eventual demise. Or, they may feel that it’s none of their children’s business, or even worse, that their children just want their money. Children may be reluctant to initiate the conversation because they may feel as if they’re challenging their parents traditional authority or that they are violating their privacy. Therefore, tact, patience, and persistence are keys to successful conversations.
You’ll first need to discuss what they would like to happen if they were to become incapacitated or die. Once you identify their intentions, its simply a matter of making sure the appropriate documents are in place to carry out their aims. A good estate plan will ensure that your parents property goes to the right people, at the right time, and in the right form, while minimizing taxes and administrative expenses. Also, they’ll need documents to authorize others to act on their behalf in financial and health care matters if they become incapacitated.(Discussed Below).
Imperative is an up-to-date will. Also known as a last will and testament, this legal document directs property the will maker owns solely in his or her name at death. If your parents already have wills, they should consider updating them if they if there’s been significant federal or state tax law changes or if they:
– bought a new life insurance policy
– bought a time share
– moved to another state
– bought real estate in another state
– want to name a new executor
– got a divorce
– got married (or remarried)
– became estranged from a beneficiary-had a change in your health (or your child’s health)
– had a birth or death in the family
It’s also important to have your parent(s) create or update their Letters of Instruction. This document, though technically not a legal document, should accompany the will. It speaks for the parents as if they were still living. Suggest they include instructions not easily included in the will, such as: burial instructions; identifying various accounts, including passwords and pin numbers; contact information of advisors, attorneys, relevant family members, executors, employer benefits personnel, etc.; safety deposit box and key locations; where they keep important documents, including: life insurance policies, deeds to real estate, and the original will.
It’s also important to make sure the named beneficiaries of your parent’s various accounts are current. These accounts include: their company savings plans; their life insurance policies, including group plans at work; IRAs, among others. Too often proceeds have gone to the wrong people or to reimburse the state for a parent’s nursing home care expenses because they forgot to update their beneficiaries.
Make sure your parents have up to date Durable Powers of Attorney (DPOA) in place. This document authorizes a person to act on behalf of the parent for financial and legal affairs. The earlier this document’s in place the better, as sometimes, time limited property transfers may be necessary to protect the parent’s assets from costly long-term care expenses. Also, the enumeration of specific powers in the document provides the holder of the document with the needed flexibility to act as needed. Generally, if the powers are not specifically designated the law assumes the parent didn’t want the holder to have those powers.
An Advance Directive for Health Care (ADHC) is another document the parent should have in place. As with the DPOA, the holder of the ADHC makes health care decisions for them and carries out their “end of life wishes” as they’ve expressed them in their Living Will. Living Wills are documents that express your parents’ “end of life” wishes, including “do not resuscitate” orders, and their wishes if they fall into a “vegetative state with no hope of recovery.” Make sure all these documents comply with rules on protecting medical information (HIPPA) so that your parents’ agents can make informed decisions.
In closing, review your parent’s estate plan every 3 years as it’s likely they’ve overlooked something, like the consequences of a new federal or state tax law. And don’t forget to coordinate changes in your parent’s will with their beneficiary designations, letters of instruction, DPOAs, ADHC, and Living Wills.