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Investing Specialists

Estate Planning: More Than a Bunch of Documents

Communicate early and often with your family about what to expect after you’re gone.

Like many people, my husband and I recently went through the process of (belatedly) getting our estate plans in order. Facing the reality of our eventual deaths and the potential impact on our family has been a sobering experience--and one we’re still working through. All the relevant documents have been signed, sealed, and delivered (neatly organized by our attorney in a handy binder), but the process doesn’t end there. For us, getting the formal documents finalized was important, but we realize that communicating about our plans and values around money is equally important. In this article, I’ll share some of my thought process on sharing information with young adult children about estate plans and eventual wealth transitions in the family.

Consider Age and Readiness
If your children are still under the age of 18, there’s probably no need to delve into great detail about how your estate plans are set up. Children who are curious or prone to anxiety might be reassured to know the plans for who would take care of them if their parents suddenly weren’t able to, but otherwise, it’s more important to have regular discussions about the role of money--how to save, how to spend, and how to align your finances with your values. Much of this can be done by example or by involving children in family budgeting tasks.

We raised our two sons in a relatively affluent area, and they were well aware that many of their friends led lives of privilege, with elaborate birthday parties, bar and bat mitzvah celebrations, and lavish vacations. We tried to instill different values around money by avoiding conspicuous consumption, contributing aggressively to our 401(k) plans and 529 plans, and carving out some spending for things that are important to us, such as education and traveling as a family. Our kids also listened patiently to many lectures about the wonders of compound interest and the importance of avoiding debt.

Once your children are over the age of 18, it’s time to consider what role (if any) you want them to have in handling financial matters after your death. This is a highly individual decision that depends on each family’s circumstances. 

Even after kids reach legal adulthood, there may be legitimate reasons to appoint a trustee who can disburse assets from your trust or estate according to your wishes. That’s particularly true if your estate is unusually large, if you have children with special needs, or if beneficiaries have drug problems or other issues that could be exacerbated by sudden access to large amounts of money. Even in more normal circumstances, many parents might decide to hold off on transitioning wealth until after their children pass the critical age of about 25, when science tells us the brain’s prefrontal cortex reaches full maturity, allowing for more rational decision-making.

In our case, we decided not to put a lot of strictures in place that would limit our kids’ access to assets in the unlikely event that both my husband and I pass away at a relatively young age. I’m proud to say that both of our kids have now reached their early 20s and are working on forging their own paths in life (composing and teaching music for our older son, and medicine and entrepreneurship for our younger one). No one has everything figured out before the age of 30 (or even after that, for that matter), but we felt that both of our kids would handle any sudden windfalls responsibly and think through decisions about how to save, spend, and invest in a sensible way.

Communicate the Basics
Sharing information about your estate plans isn’t a “one and done” process. If you expect to live for at least a few more years, continue spreading out the conversations over time. One useful framework for doing this is to start with the most concrete and practical information and gradually cover more complex and abstract issues, such as your family legacy, how you hope your heirs will use any inherited assets, and how you hope your family will remember you. 

At the most practical level, make sure that everyone involved in your estate plan understands what their role is and what type of tasks they’ll need to handle after you’re gone. (It’s a good idea to make sure family members are comfortable with these roles before finalizing your estate documents). Some of the key roles you’ll want to cover include:

● Trustee
● Executor
● Agent for healthcare power of attorney
● Agent for property power of attorney
● Authorized person for access to medical information (HIPAA)

In most cases, your documents will probably specify one primary person for each role (often a spouse, but not always) and one or two backups. If you’ve named someone as a backup, make sure they’re aware of that, too. It’s also helpful to send a contact sheet to everyone involved in the estate plan so they know how to reach your attorney as well as other individuals named in your documents.

Make sure everyone involved in your estate plan knows where to find key documents, such as wills, trusts, and powers of attorney. Eventually, you’ll also want to map out a detailed list of your financial records, including investment assets, bank accounts, mortgages, credit cards, car loans or other debt, and regular bills. This is also a good time to start talking about your wishes for healthcare, such as whether or not you want medical interventions in certain situations, whether you’re comfortable with experimental medical treatments, and whether you have a preference for remaining at home as long as possible.

Share More Information over Time
With the benefit of continued good health (I hope) on our side, my husband and I should both live for another three or four decades. As we get older, we plan to have regular discussions with our sons to make sure they have the information they’ll need after we’re gone. We’re just getting started with this process, but I envision sharing more context as it becomes relevant.

It’s helpful for your beneficiaries to have a general understanding of how your finances are set up--which assets do you hold in taxable versus tax-deferred accounts, is your mortgage paid off, and are there certain assets such as a family business that will eventually need to be transitioned to the next generation. Beneficiaries will also need to know potential tax implications of assets they inherit, such as whether they can step up the basis of inherited assets for capital gains purposes (which is a key part of the tax code currently under debate) and when they’ll need to take required minimum distributions from inherited IRAs (which are generally required to be fully distributed within 10 years of the original accountholder’s death for nonspouse beneficiaries).

Many families are less comfortable talking about specific dollar amounts their beneficiaries may eventually inherit. For one thing, the size of an estate can be largely unknown if your eventual death is decades down the road. Market performance, potential tax-law changes, and the cost of specialized medical care late in life are all huge swing factors that can easily add or subtract zeros from the end of your net worth. However, as your children start planning their own financial futures, it’s helpful to share more details about your plans, such as whether you plan to contribute to education funds for any potential grandchildren or set up a gifting program to take assets out of your estate.

It can also be helpful to bring in other financial professionals as part of the discussion, particularly for families with significant wealth. A qualified financial planner or estate planner can help facilitate discussions and work through any contentious issues.

Finally, make sure to revisit your estate plans every few years. As your circumstances change, revisions and amendments are a natural part of the process for many people. That's especially true if you move to a different state; have major changes in the family such as a birth, death, or divorce; or decide to handle your estate in a different way.

Conclusion
The nuts and bolts of estate planning are important, and getting your affairs in order ahead of time can help your family avoid a long, expensive probate process and the hassle of trying to figure out how your accounts are set up. But the process of drafting estate plans is also about much bigger issues: what’s important to you, what type of legacy do you want to leave behind, and how do you hope your family will evolve long after you’re gone. It’s also a sobering reminder that life is finite, and none of us will be around forever. Make sure to show your loved ones how much they mean to you today--with both your words and your estate plan.