Preparing Your Parents

There are many topics that can be difficult to discuss with our parents: politics, religion, how they can root for the Yankees in the age of Steinbrenner, etc. Asking about any of these things, however, is a walk in the park compared to asking about their estate planning. Have they prepared a will? Where is it kept? Does it need to be updated? Have they taken steps to avoid being the next Terri Schiavo? How do they feel about nursing homes? What are their funeral preferences? No one wants to appear greedy or morbid by posing these questions, and no one wants to look like they’re asking how much they’ll get when their parents pass on.

But there’s a difference between asking what plans our parents have made for their estate, and simply making sure that the necessary plans have been made. It is in both your interests—your own and that of your parents—to make sure that their money and valuable possessions will be dealt with after their deaths as they would want.

You might think that financially responsible people would have the foresight to take care of these things long before they are needed, but that’s not always the case. The Washington Post recently reported on a survey of 100 millionaires, which found that 29 percent of them did not have a will, and more than half of them had not discussed disposing of their estate with their family members. Don’t let your family fall into that category.

The Key Documents

How much planning do your parents need to do? There are a handful of documents that everyone should have prepared long before they become incapable of working on these things. When the moment is right, ask them if they’ve taken care of the following items:

  1. A will. This is, of course, the key document, the one that will establish who is to receive a portion of their estate—not just family members, but charitable causes, needy friends, or other worthy recipients.
  2. A durable power of attorney. This will assign someone to handle their finances in case they are unable to do so themselves due to incapacity.
  3. A medical power of attorney and living will. In case of severe illness or accident, these will designate someone to make medical decisions on their behalf and will allow them to specify what decisions should be made concerning life-prolonging medical procedures. Some jurisdictions refer to these two documents as an Advance Medical Directive. If the Terri Schiavo case has taught us anything, it’s the importance of having your wishes known early on.
The right preparation can lessen the estate tax burden

Once you’ve summoned up the courage to ask about those necessary documents, you may want to talk to your parents about what they could be doing today to deal with their estates. At the moment, the estate tax exemption is $1.5 million, which means they would be subject to estate taxes only on the amount of their estate greater than $1.5 million. But there are steps they can take right now to lessen the burden their estate would have to pay.

If your parents’ estate exceeds $1.5 million, there are three simple concepts they can consider to reduce their estate taxes. First, there’s a gifting program. They can give each of their children, grandchildren or anyone else up to $11,000 per year, free and clear, without filing a gift tax return or incurring any income tax liability on the part of the recipient.

Second, each parent could consider establishing a 529 Plan for each grandchild with a lump sum of $55,000 to help pay for future college costs. Funding the 529 Plan will mean they cannot make annual gifts of $11,000 to the same grandchild for the next five years.

Third, they may want to revise their wills or create a living trust that utilizes a bypass trust. With assets titled appropriately and the trust funded properly, this could protect up to $3 million of your parents’ estate from estate taxes.

Wealth Management: The Holistic Approach

One way to avoid having important financial decisions like estate planning fall through the cracks is to make use of a wealth manager. Unlike an investment advisor or financial planner, a wealth manager takes responsibility for overseeing a client’s entire financial health, from investments to legal issues.

A wealth manager who uses the Strategic Client Consulting Process™, as we do at Bernhardt Wealth Management, begins by asking about all the aspects of a person’s financial life, including the family relationships they need to be concerned with. That’s the focus of the very first time we sit down with a client, at the Discovery Meeting. Our job, like that of any good wealth manager, is to learn everything we can about a client’s financial picture, so that whatever they need help with—whether it’s not enough life insurance, an overconcentration in one sector of the stock market, or a lack of knowledge about their estate plans—we’ll find out about it.

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