When you talk to your family about your financial plan, the gift of that knowledge may one day keep your heirs from feeling that theyâ€™ve just received a lump of coal.
When most people think about giving gifts at this time of year, they imagine packages wrapped up tightly with paper, sealed with tape, and maybe even hidden up on some obscure shelf to prevent any peeking. In this vision, the best kind of gift is one that’s a complete surprise to the recipient at the moment they joyfully tear open the shiny paper. Some gifts, however, shouldn’t be a surprise. When you talk to your family about your financial plan, the gift of that knowledge may one day keep your heirs from feeling that they’ve just received a lump of coal.
There are many reasons people don’t like to talk to relatives about their finances. For instance, when my wife and I updated our wills, we decided to name my mother-in-law as the guardian for our kids and my parents as the back-up. Like a good planner, I practiced what I preach: I made sure to tell both sets of parents of our decision so that it wouldn’t come as a surprise if a bus came along and… you know what. Needless to say, my mom wasn’t too happy about being “second”, and I had to hear about that for longer than I had planned. Still, although the conversation may not be easy, having all the parties on the same page ahead of time can avoid adding the surprise of an unexpected guardianship to an already trying and stressful time for a surviving relative. You also will have peace of mind in knowing that your wishes are more likely to be carried out smoothly.
Some of our clients have set up planned gifting for their heirs but have wanted to keep those plans hidden, thinking that an expected inheritance would take away from their children’s motivation to be productive citizens. Family dynamics and civic responsibility aside, it is critically important to communicate your plans with your family. Why? Because when you’re gone, it will be very difficult for someone to carry out your plans the way you want them if there’s nobody else alive who knows what they are!
Here is a short list of things you may want to consider telling your adult children about your plan.
1. Legal Responsibilities
If you name your child to a role in your estate planning documents, they deserve to know. In fact, this is a discussion you should have with your child before you get the documents drafted. Take being the executor of your estate, for example. It’s not an easy job. Even with a seemingly gift-wrapped estate plan, being an executor requires detailed work and the burden of legal responsibility. What’s more, in some circumstances, executors could be held personally liable for estate tax owed. Having power of attorney or being a trustee can be similarly large and open-ended undertakings. I highly recommend that you disclose these roles to anyone you name in your documents, and make it clear if you plan for there to be any compensation for the work done.
2. Caretaker Responsibilities
In today’s world, children are as likely to pack up and move across the country (or the world) after moving out of the house as they are to stay in their hometown. This may leave their parents to wonder who will take care of them if they can no longer live on their own. Many clients are turning to Continuing Care Retirement Communities to fill that need, and some purchase long-term care insurance policies to fund the cost (a topic for another article). With the cost of care skyrocketing, however, these insurance policies have become unaffordable or unobtainable for many people. Instead the plan is, they say, to “move back in with the kids”. If you are giving serious thought to that being your plan, you need to have a real discussion in advance with the child you are planning to move in with. If you have multiple children, I would recommend that you put your preferences in writing for which child you would live with, and again, document whether or not you plan to compensate the child who becomes your caretaker.
3.Gifts to Grandkids
It’s a grandparent’s prerogative to dote on their grandkids, and one way that many of our clients are choosing to do so is by creating 529 college savings plans. This can help avoid potential estate tax by removing assets from the estate while also helping provide a solid educational foundation for the grandkids with less impact to potential scholarships than other savings vehicles (another topic for another article). While the full savings plan might not be set in stone yet, it’s still best not to hide your intentions on this matter since it could lead to overfunding the college savings if not done in collaboration with your child.
These types of conversations are important to have but can be difficult to start, particularly if you come from a family that is private about finances or distant geographically. We have taken steps to help with this dilemma by scheduling meetings with our clients and their kids to help them get these conversations started. Some clients have requested that, in doing so, we limit the amount of information we discuss (usually in terms of the amount and types of assets they own), and that’s OK. In speaking with the children of clients, I’ve noticed how few have really cared about the exact dollar amounts their parents are worth, and how fewer still wanted an account of all the investment details. More than anything, the consistent message from the kids has been that they just want to know that their parents are in good hands, as well as whether anything is expected of them down the road and whom to call at that time.
Modera Wealth Management, LLC’s (“Modera”) is an SEC registered investment adviser with places of business in the Commonwealth of Massachusetts, State of New Jersey, State of Florida and State of Georgia. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to Modera’s registration status, its fees and services and/or a copy of our Form ADV disclosure statement, please contact Modera or refer to the Investment Adviser Public Disclosure website. A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.
This article contains content that is not suitable for everyone and is limited to the dissemination of general information pertaining to Modera’s investment advisory and financial planning services and general economic and market conditions. Nothing contained herein should be interpreted as legal, tax or accounting advice, nor should it be construed as personalized investment or financial planning advice. For legal, tax and accounting-related matters, we recommend that you seek the advice of a qualified lawyer or accountant. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed herein will come to pass. Investing in the stock and other markets involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be construed as a solicitation to buy or sell any security or to engage in a particular investment, financial planning or other strategy.