While 56% of Americans think having an estate plan is important, only 1 in 3 actually have at least one estate planning document, according to Caring.com’s 2022 wills and estate planning study. And when it comes to the very first step—having a conversation about a loved one’s end-of-life plans—20% of individuals have done so. For parents with adult children, the idea of talking about their personal finances can be daunting, but there are ways to make the estate planning process easier. In many ways, discussing estate planning is akin to passing through the stages of grief for everyone involved, said Amy Morin, psychotherapist and editor-in-chief of VeryWell Mind. “It’s normal to experience denial, anger, sadness, and even bargaining,” Morin said. “It may take a while before everyone accepts that estate planning is really what you should be doing now.” In this article, learn why and how early estate planning with your parents can protect the transfer of wealth, reduce stress, and preserve a family legacy.
Why You and Your Parents Should Start Estate Planning Early
Understanding the wishes of your parents can be a heavily involved process. As life cycles change, there’s often a reliance on family members to step up and take care of one another. That unspoken reliance can lead to avoiding discussions about expectations, said Christopher Drew, founder and president of Drew Capital Management. The older your parents are, the more likely they are to have some cognitive decline or issues with mobility, said Ramona Ortega, financial educator and CEO of My Money My FutureDepending on their ailments and mental capacity, your parents’ “legal competency” may come into question by the courts, according to nonprofit the BrightFocus Foundation. As a result, a court-appointed surrogate may be chosen to act on behalf of your parents. If a plan isn’t put in place ahead of time, this could alienate you from the process and deter your parents’ initial wishes for their financial future. By financially planning ahead with your parents, you can ensure that when they die, you’re ready to focus on what matters most during a difficult time: grieving and being with loved ones. Below are some reasons why estate planning early with your parents is a good idea.
Reduce Stress
Waiting to start planning until intense and highly emotional life events happen is more likely to lead to stress, anxiety, and mishaps when getting affairs in order. Without proper documentation or arrangements such as a living will with medical instructions or someone with power of attorney responsible for final affairs, the surviving family will likely spend more time and money trying to figure out the person’s wishes. “It’s a reality that can make financial futures more complicated, which is why it’s ideal to start discussing financial matters and wishes for after death early,” Drew said. The lack of a properly executed estate plan can result in lengthy and costly court proceedings, as the courts are left to divide assets in a way that may not align with familial wishes and values. If a divorced couple fails to update beneficiaries for IRA accounts, the ex-spouse may receive money that was verbally promised to children.
Simplify a Complicated Process
Without having financial-planning conversations, families open themselves up to possible mismanagement of the transfer of wealth, excessive tax debts, and the risk of wishes not being honored during end-of-life decisions. “I knew of a couple who were never married, been together for 40 years and living together,” Ortega said. “They lived in Oakland Hills in a house that the guy’s mother supposedly passed down to him. The guy died and girlfriend wasn’t on the deed.” In that situation, lawyers and state courts got involved because another relative claimed the house, forcing the partner of 40 years to leave. “Luckily, she ended up getting money to leave, but all of this could have been avoided if they discussed his wishes and had affairs in order,” Ortega said. “But instead, we avoid these discussions because it’s uncomfortable, and we’re left in emergency mode, scrambling and spending even more money trying to work it all out.”
Preserve Wealth
Without knowing your parents expectations, your own retirement, wealth building, and financial wishes could be impacted. With a detailed estate plan, the large potential costs of locating assets and proving relationships of assumed beneficiaries, especially in the case of distant relatives, can be mitigated. An estate plan can also maximize the transfer of wealth through generations, according to Marc Scudillo, certified financial planner and managing officer of EisnerAmper Wealth Management. “By having even a simple will, many of these costs can be eliminated or reduced, and assets will be going to the persons and causes the deceased desired, and not what a state decides,” Scudillo said.
Close the Racial Wealth Gap
The term “estate planning” can be exclusive, and can sound like a process solely for high-net-worth individuals. “The discussion and proper planning of passing on estates is for everyone. It’s how we close the wealth gap; especially in communities of color,” Ortega said. “The intergenerational wealth can be huge for communities, and it’s important that it’s discussed so it can be protected.” However, for some families of color, it’s not uncommon to avoid discussions about money and estate planning in fear of judgment about how they’ve handled money through the years, said Ortega. “Money is personal. There can be a lot of shame involved if there’s not much to pass down, especially in communities of color,” she said. “In some cases, this generation will be the first to have any wealth passed down. My mom didn’t get anything, but I will be the first to receive any intergenerational wealth.” Black and Hispanic families are historically paid less, have fewer opportunities to invest, and lack access to resources that provide upward mobility. As a result, the wealth accumulated in their lifetimes are often far lower than that of their white counterparts.
How To Start Early Conversations About Estate Planning
Nearly 65% of respondents to a 2020 Wells Fargo survey reported speaking little or not at all to family about estate plans, while 57% admit they could discuss more. But before you sit down with your parents to have these conversations, it helps to discuss it with siblings first, if you have them. Often, honest conversations about what will serve your parents best financially can mitigate any contentious situations later on. While the equitable division of assets and responsibilities is ideal, those things can vary based on the needs of the parents, as well as the lifestyles of the siblings. Plus, having siblings on board with a plan may make it easier to broach the subject with parents. When you’re ready to talk about estate planning with your parents, here are some ways to start the discussion without making it uncomfortable or hurting their feelings.
Start With Small Questions
For some parents, having a thorough discussion about their own finances with their kids can be intimidating. To avoid feelings of anxiety or stress for all parties, consider starting slow. You can start by asking preliminary questions in passing rather than having a formal, sit-down conversation on the subject matter, Ortega said. For example, you may ask, “Who’s on the deed of the house? I just want to make sure everything is protected.” Or “Can you show me exactly where you keep all the important documents for the family in case I need them for an emergency?”
Focus on Their Legacy
When talking about financial matters with your parents, remember that it’s about them and their needs rather than your own. In addition to the discomfort associated with discussing death, 52% of the Wells Fargo survey respondents feared discussing money with their parents would make it seem like they cared solely about a potential inheritance. However, for those who want to talk openly about estate planning with their parents, 86% are more interested in inheriting their parents’ values than money, and open dialogue can help with that. “By shifting the conversation to what happens after death, in a way, we leap-frog over the main source of discomfort, which is the actual passing,” said Carlos Legaspy, wealth manager and author of “Going for Broke: How One of Latin America’s Largest Financial Frauds Became a Blessing in Disguise.” “It gives the opportunity to discuss a future and how it can be made better both emotionally and financially,” Legaspy said.
Use Relatable Examples To Start the Conversation
It can be hard to get through to your parents about the realities of estate planning, but using situations they can relate to can help them open up, suggested Scudillo. Share a relatable story you’ve heard of, perhaps in your own life or in pop culture, and share it with your parents. This can lead to a segue to “This makes me wonder if I’m the beneficiary of your policy. Am I, Mom?”
Focus on Tax Benefits
If nothing else gets through to your parents about the need for talking about their estate, any mention of taxes can often lead to a change in opinion, Ortega said. Estate planning can be used as a tax strategy, mitigating costly liabilities depending on the method you choose. The estate tax specifically may qualify your parents for certain deductions that would serve as a benefit. Without proper planning, their estate could face higher rates of gift, federal, and state taxes depending on the assets they have. Certain qualified deductions include mortgages and other debts, estate administration expenses, property that passes to surviving spouses, and qualified charities.
The Bottom Line
Discussing estate planning with your parents can be overwhelming to all those involved. However, accepting the need for it will provide peace of mind, knowing that money and associated values will be preserved. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
