This time of year, family gatherings are at their peak, and conversations may entertain and bring people closer together. But even in families that do get along well, an important conversation topic is generally avoided.
There is often a disconnect between parents and adult children when it comes to discussing the parents’ financial standing, health care preferences and legal aspects of their estate.
In families without proactive parents who raise the issues and share knowledge with the next generation, the responsibility defaults to the adult children to raise the topic. Ideally, the conversation will ensure that both generations are more confident that the right decisions are being made, the right advice is being sought, and plans exist for how to address issues that may develop over time.
Avoiding this talk creates a risk that could cause more headaches than the conversation will. The last thing you want is to find yourself in a position in which the talk that never took place becomes a costly and possibly emotionally-draining conundrum. This route, usually involving lawyers, courts and possibly angry siblings, is all too common.
The talk allows a discussion of preferred options for managing money, health care decisions and estate planning rather than settling for the default choices available to the unprepared.
Adult children can help by asking the right questions and encouraging the conversation. The holidays likely aren’t the best time to get into the details. You may want to introduce the idea, but it’s best to plan some time when attention can be dedicated to the financial security and life preferences conversation.
Unless the conversation is coming too late, this should not be a child taking over the life of the parent. It’s simply a sharing of perspectives, preferences and contingency details. Some topics will be easier to discuss than others. But don’t ignore the difficult ones. This is not an area to just scratch the surface — it requires patience and depth.
Adult children would be wise to understand their parents’ answers to these questions:
• What are their sources for retirement income? What savings and investment accounts are available to supplement Social Security and pensions or annuities?
• Is there a financial plan that projects how long their assets might last?
• Where are the fault lines in the financial plan? Are there any particular risks that should be better understood?
• How will their income change when one of them dies?
• What level of risk are they taking with investment accounts?
• Is the will up-to-date? Where is it kept? Are there assets held in trusts (now or at death)? Are assets that are supposed to be in the trust actually titled that way?
• Are their Powers of Attorney in place for health care and financial matters (often two separate sets of powers)?
• Have they communicated their expectations with the chosen executor of the estate?
• When was the last time they reviewed the beneficiaries for retirement accounts and life insurance policies? These accounts pass directly to heirs outside of directions included in a will.
• Do they have charitable intent to support nonprofit organizations with ongoing gifts or bequests?
All of these questions — and many more that may be specific to individuals or families — provide the necessary understanding to then address the “what if” follow-up questions.
No doubt, these questions can lead to family stress. Parents may balk for fear of losing control, avoidance of potential conflicts among children or simply not wanting to confront their inevitable decline in decision-making and cognitive ability.
The conversation also can create an opportunity for parents to share lessons that may otherwise go unsaid. And it may give children the confidence that the parents can continue independence longer than previously assumed, especially with the right assistance when necessary.
While reluctance to advance this conversation is common, once these topics are covered, a great majority of parents admit to feeling more at ease and confident in their situation. According to a recent Fidelity Intra-Family Generational Finance study, 93 percent of parents who had discussions about wills and estate planning say it brought greater peace of mind.
This isn’t a one-time conversation. Create an expectation to review with parents once a year or more often if significant changes to their situation occur. If there ever was a topic to overcommunicate, this is it. Don’t ignore the discussion in favor of a “hope for the best” strategy.
Your effort now may help avoid unnecessary discomfort later.
Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a registered investment adviser in Old Town Tacoma. Reach him at bhjadvisors.com.